IHT planning for clients with a power of attorney in place

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.

In cases where a client has lost capacity, it can be difficult for their attorney to carry out any trust planning, or make any significant gifts, as this would involve giving the client’s assets away. This makes Business Relief particularly relevant in situations where the assets must remain available to the client.

Meet Mariam

In this client planning example, Mariam is a widow in her mid-80s and can no longer make her own financial decisions. Before losing capacity, Mariam created a Lasting Power of Attorney (LPA) and appointed her son, Finn, as her attorney. She also made gifts to her children to help reduce the inheritance tax (IHT) due on her estate, and told Finn she wanted to ensure her estate was passed on tax-efficiently to her grandchildren.

Mariam inherited her husband’s estate in full, and now has total assets worth £2 million, including a home valued at £750,000 and a stocks and shares portfolio worth £250,000. She also has a significant pension that covers her ongoing care costs. With her own nil-rate band (NRB) of £325,000, her husband’s unused NRB, and both residence nil-rate bands (RNRB), Mariam’s estate will benefit from combined IHT allowances of £1 million. That leaves £1 million exposed to IHT, creating a liability of £400,000 upon her death.

Using Business Relief for IHT exemption

Because Mariam no longer has capacity, Finn would find it difficult to make large gifts or use trusts on her behalf, as these would involve giving assets away. Whole-of-life insurance is also not an option due to Mariam’s age and health. Finn’s adviser suggests selling her £250,000 investment portfolio and reinvesting the proceeds into a Business Relief qualifying service. Crucially, unlike with settling assets into trusts or making gifts, shares in a Business Relief-qualifying service remain in Mariam’s name. This means the capital is still available if circumstances change, for example if additional care costs arise. Finn understands that this is higher risk than Mariam’s current investments, but it is within her capacity for loss and consistent with her estate planning objectives.

Provided the shares are held for at least two years, and are still in Mariam’s name at death, the £250,000 investment would be exempt from IHT. This reduces the potential liability on her estate from £400,000 to £300,000, a saving of £100,000.

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.