Ensuring full IHT exemption after the death of a spouse

Our Business Relief estate planning scenarios are based on situations advisers often encounter, making them a great starting point for discussions with your own clients.

From April 2026, the first £2.5 million invested in unquoted (privately owned) shares that qualify for Business Relief will attract a 100% rate of relief (an effective IHT rate of 0%). Anything above £2.5m will attract a 50% rate of relief (an effective rate of 20% IHT). For shares to qualify for Business Relief, they must have been owned by the deceased for at least two years before they died. This makes Business Relief particularly relevant for clients keen to achieve full IHT exemption after the death of the second spouse and where allowances have been used up.

Meet Sarah and Jane

In this client planning example, Sarah and Jane are married, are both in their early 90s, and both have two children from their previous marriages. Sarah and Jane’s combined estate is worth £1.3 million, of which £300,000 is in an investment portfolio. They have a good income and their main residence is worth a relatively small part of their estate. They have mirror wills in place, with everything passing to their children on the second death. Their estate will be entitled to both the nil-rate band and the residence nil-rate band, giving them a combined IHT allowance of £1 million.

The remaining £300,000 will be subject to IHT at 40%, meaning that without further estate planning, their beneficiaries will face an IHT liability of £120,000 after the death of the second spouse. While neither has any major health issues, their adviser suggests a whole of life policy would be very expensive because of their ages. Due to the amounts involved, they would need to survive for seven years before any gifts made become fully exempt from IHT, which they both think is unlikely.

Using Business Relief for IHT exemption

Sarah and Jane’s financial adviser recommends selling their stocks and shares portfolio and investing the £300,000 proceeds into a service that invests in companies qualifying for Business Relief. As they are married, only one of them would need to survive for two years for the shares to become exempt from IHT, which they feel is achievable. Their adviser explains that a joint application would mean the investment avoids probate, with the surviving spouse able to access the portfolio if needed.

If Sarah and Jane decide to invest individually, on the death of the first spouse, the portfolio would transfer to the survivor once probate had been granted, without interrupting the two-year qualification period. Sarah and Jane understand that a Business Relief-qualifying portfolio is a higher-risk investment, but it is within their capacity for loss and aligns with their estate planning objectives. After discussing the options, they opt for a joint investment.

Investor’s capital is at risk. Target returns are not guaranteed. This client planning scenario does not take into account investment growth or charges for the investment. It is based on tax rules and personal allowances at January 2026, which could be subject to change and depend on individual circumstances. Tax reliefs depend on the investments maintaining their qualifying status for Business Relief. This scenario is for illustrative purposes only and should not be construed as investment or tax advice.