IHT planning for clients with limited life expectancy

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 where seven years may be too long to wait.

Meet Martha

In this client planning example, Martha (age 85) is widowed and recently inherited her husband’s entire estate. She now has assets worth £1.8 million, including her home valued at £600,000 and a stocks and shares portfolio worth £400,000. Martha’s pension gives her an income which should cover future care costs, and while her health is good, she doubts she will live another seven years. Martha has made some gifts in the past but does not want to make new gifts that could trigger an IHT bill.

Martha’s estate will benefit from her nil-rate band (NRB) of £325,000 and her late husband’s unused NRB. Because she plans to leave her home to her children, she can also combine her residence nil-rate band (RNRB) of £175,000, with that of her late husband. In total, her estate qualifies for IHT allowances of £1 million. This still leaves £800,000 exposed to IHT, creating a liability of £320,000 on upon her death.

Using Business Relief for IHT exemption

Martha’s financial adviser recommends selling the £400,000 stocks and shares portfolio and reinvesting the proceeds into a portfolio of investments capable of qualifying for Business Relief (BR). Provided the shares are held for at least two years and remain in her name at death, they will be exempt from IHT.

Martha understands that Business Relief is a higher-risk investment than her existing portfolio, but has agreed it is within her capacity for loss
and meets her estate planning objectives. Importantly, the investment remains in her own name, giving her the option to draw an income if needed. By moving £400,000 into Business Relief, well within the new £2.5 million allowance, Martha reduces the IHT due on her estate from £320,000 to £160,000. This means her children would inherit an additional £160,000, while she retains access to her money during her lifetime.

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.