Financial planning for Inheritance Tax

Having recently sold a family business that qualified for Business Relief (BR),  our client’s main objective was to mitigate an Inheritance Tax liability (currently 40%) on their death. 

The value of the shares sold in the business sale were significant and subsequently included in our client’s estate for Inheritance Tax (IHT) purposes – increasing the IHT liability overnight.

If no action had been taken at this point, the tax bill on her death would have increased significantly. 

Minimising Inheritance Tax liability with Business Relief 

Thankfully, Business Relief allows for the relief to be maintained, providing up to 100% relief from IHT on death (without the need to wait a further 2 years to gain qualification) if further Business Relief qualifying assets are purchased within 3 years of the sale.  

We were able to assist our client by

  1. Providing access to specialist investment products which give the opportunity for individuals, or businesses, to invest their cash into companies that carry out a qualifying trade for Business Relief.

  2. Recommending that she made use of these products by reinvesting the proceeds from their business sale.

  3. Without needing to wait for the 2-year qualification period again, we were able to remove the additional tax liability almost as quickly as it fell into her estate. 

Whilst this was a great outcome for the client, we were also able to take additional steps to further reduce the eventual IHT bill, making use of IHT allowances known as the Nil Rate Band and Residence Nil Rate Band. 

Our client’s estate totalled £2.4M – so despite the intention to pass her home on to her children, she would not receive a Residence Nil Rate Band in her current financial situation. 

Our recommendations

Once her new Business Relief qualifying investment was made, we advised that our client gift the investment to her family, removing the investment from her estate, bringing its value down to £1.9M and allowing her to regain her Residence Nil Rate Band – a further Inheritance Tax saving of £70,000. 

The only drawback is that her grandchildren cannot sell the investment for 7 years or until their grandmother’s death. However, this strategy has benefited our client’s tax position and reduced the administrative burden on the estate. 

The outcome

Immediately following the sale of the family business, our client benefitted from potential tax savings of £270,000. 

Our client really appreciated that we were able to demonstrate the potential tax savings in such a clear and concise way alongside our comprehensive recommendations. 

Inheritance Tax and Estate Planning

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