It may be possible to reduce your IHT liability by investing in specific types of asset that qualify for reliefs, allowing the assets to be passed down the generations more tax efficiently.
Though there are others that are less commonly used, such as Woodlands Relief, we focus below on the two most commonly claimed reliefs.
Business Relief applies to interests in unlisted businesses (where usually 100% of the IHT liability is relieved). It also applies to majority shareholdings in listed companies and to machinery and plant owned by an individual but used wholly or mainly in their business (where usually 50% of the IHT liability is relieved).
In order to qualify for relief, businesses must be run on a commercial basis to make a profit, must not deal mainly in investments, land or buildings, and must usually have been owned for at least two years.
Unlisted businesses include some of the companies traded on the Alternative Investment Market (AIM) into which anyone can invest, and a number of asset management companies also offer specific investment opportunities built around the relief. These are all fairly high risk investments.
In addition, for investors comfortable with an even higher level of risk, investments eligible for the Enterprise Investment Scheme (EIS) are usually also eligible for Business Relief.
Agricultural Relief applies primarily to land used to grow crops or as pasture for farm animals, and associated farm buildings, including a farmhouse if the size and character of the building is commensurate with the land.
If occupied by the owner (or their spouse/civil partner), the agricultural property must have been owned and used for agricultural purposes for two years. In such circumstances, usually 100% of the IHT liability is relieved. If let to a tenant, then the agricultural property must have been owned and used for agricultural purposes for seven years, and only 50% of the IHT liability is relieved.
Please note that Business Relief and Agricultural Relief are both particularly complex areas, and we would recommend that those who intended to rely on the relief speak to specialists in the field.