How Replacement Relief helped preserve a £2 million legacy

Lucy Dolan, Senior Business Development Manager at Triple Point

Once unspent pensions are brought into people’s taxable estates from April 2027, more clients than ever will risk leaving behind an IHT liability for their loved ones. IHT receipts are expected to jump from £9 billion in the current financial year to over £14 billion by 2030.¹

The onus now is very much on financial advisers to encourage their clients to revise their thinking and consider how they plan for IHT. Otherwise, the biggest beneficiary of your client’s wills may potentially be the HMRC, rather than the people they care most about.

Counting the cost of inaction

Advisers need to urgently remind their clients that in many cases, IHT can be mitigated – and legacies protected – with proactive estate planning. But time is often a critical factor, and in many cases doing nothing can undo years of hard work and saving.

I recently helped a lovely couple in Liverpool that had built a successful family business over many years, entirely from the ground up. They decided to sell after one of them received a terminal diagnosis.

It’s not uncommon for family businesses like this to qualify for Business Relief; it’s what it was intended for. Their business was valued at £2 million, and qualified in full. However, after they sold the business, the sale triggered an IHT liability, as the £2 million was no longer held in Business Relief-qualifying asset, but as cash in their bank account.

Because their nil-rate bands were being used elsewhere, the entire £2 million would have been taxed at 40%, resulting in an IHT bill of £800,000. This would have taken a substantial chunk out of the value of the business the couple had worked so hard to build as a legacy for their children.

Fortunately, the couple’s financial adviser was aware of the opportunity to replace the Business Relief qualification they had just lost, and was able to give them the right advice at just the right time.

Replacing lost Business Relief

In order for shares to qualify for Business Relief, they must have been held for a total period of two out of the last five years and be held on death. The rules mean that if you sell an asset that was qualifying for Business Relief and reinvest the proceeds into another qualifying asset, you do not have to restart the normal two-year holding period. Where the original business had been held for more than two years, and provided the reinvestment is made into another BR-qualifying business, the two-year holding period does not restart.

In this case, the couple reinvested the sale proceeds in the Triple Point Estate Planning Service, which invests in unquoted companies expected to qualify for Business Relief. Because the couple had held their Business Relief-qualifying business shares for decades, as soon as the £2 million was reinvested, the full value was immediately outside of their taxable estate.

Sadly, just a few months after that money was invested, the investor passed away. But thanks to the timely actions of their financial adviser, an IHT bill of £800,000 on the sale of the business was prevented. Being able to preserve the value of the business, which that couple had devoted so much of their lives to building, was a fitting legacy.

So, this real-life example underlines an important point. When it comes to IHT and estate planning, time is a critical factor. Better to encourage clients to act decisively when they can, rather than share the family’s regret later.

Conversations that can help grow your advisory business
The new rules being introduced from April 2027, which will bring unspent pensions into everyone’s taxable estate, mean that now more than ever, estate planning is a family conversation. Advisors who can integrate estate planning and succession planning holistically within their business, and view it as a core pillar of their advice, can use it to build very resilient, multi-generational businesses. The rule changes may have made estate planning complex, but advisers have the tools at their disposal to offer straightforward solutions that deliver the best possible outcomes for clients. Often, the most valuable step is to start the conversation early.  

Important information

The Triple Point Estate Planning Service places capital at risk. Tax treatment depends on the individual circumstances of the investor and is subject to change. Tax relief depends on the companies we invest in maintaining their qualifying status. This financial promotion has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.

¹ https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/inheritance-tax/