Financial planning


Without the input of a trusted professional adviser, the impact of inheritance tax (IHT) on business interests is often misunderstood or simply ignored. 

Michael Fryer
Wealth Management Consultant
12 October 2021
3 minutes

As we have seen from our earlier article on this topic, Business Relief (BR) is a valuable form of tax relief that allows you to claim IHT relief on business assets you own. However, it is important to understand that not all assets will qualify and for those that do, they may not receive relief at 100% of the asset value. 

Let’s look at the assets that do qualify.   

What qualifies for Business Relief? 

BR potentially applies to all unquoted shareholdings and is available to both working and passive shareholders; therefore, it is not a requirement to be working in the business or even to be a director. Neither is there a minimum shareholding requirement, so holdings of all sizes and values can qualify. 

You can get 100% BR on:  

  • a business or an interest in a business 

  • shares in an unlisted company 

  • shares in companies listed on the Alternative Investment Market (AIM) 

However, like much of tax legislation, the devil is in the detail. Not every business or interest in a business qualifies for BR. Typically BR is only available for a qualifying trading business, that is, one that exists wholly for the purpose of carrying out one or more qualifying trades. A qualifying trade can be one of myriad options, so it is perhaps easier to set out those activities that do not qualify. 

Put simply, these include a not-for-profit organisation or a company that wholly or mainly deals in shares and securities, or land and buildings, or makes or holds investments. Similarly, property owned by shareholders independently and simply used by the business will not qualify for BR. Furthermore, BR cannot be claimed for an asset that also qualifies for Agricultural Relief, so this typically excludes farmland. 

Meanwhile you can get 50% BR on: 

  • shares controlling more than 50% of the voting rights in a listed company 

  • land, buildings or machinery owned by the deceased and used in the business they were a partner in or controlled 

  • land, buildings or machinery used in the business and held in trust that it has the right to benefit from 

Two-year holding period 

It is important to note that in order to qualify for BR, the shareholding in question must be held for a minimum of two years prior to the date of death or transfer. This rule is designed to prevent relief being obtained where shares were bought from your ‘death bed’. An exception would be where an asset is inherited from a spouse whose period of ownership was also less than two years. In this scenario, if the cumulative period of ownership is more than two years, BR should be available.      

BR planning 

Since the introduction of BR in the 1976 Finance Act, the legislation has evolved to include not only traditional business assets in the owner/manager sphere but also AIM listed businesses. The ability to hold such assets within an Individual Savings Account (ISA) or in a professionally managed portfolio and qualify for BR should not be overlooked and can form a valuable part of an IHT planning strategy. 

Our next article in the series will look at these investment opportunities in more detail. 

Start a conversation today
Get in touch with a member of the Mattioli Woods team below. We are always on hand to assist.
Share on social
FacebookTwitterPintrestWhatsappLinkedInFacebook Messenger
Get in touch with the Mattioli Woods team
Do you have a specific question or query? Find the right member of the
Mattioli Woods team.