Inheritance tax (IHT) is a tax on the estate of someone who has died, including all property, possessions and money. The standard rate of IHT is 40% – but it’s only typically charged on the part of the estate that’s above the tax-free threshold, which is currently £325,000.

That £325,000 threshold is also known as the nil rate band (NRB). If you own a property and plan to leave it to your direct descendants, then you could get a further allowance of up to £175,000 (known as the residence nil-rate band or RNRB).

These two thresholds were frozen until 2028 by Chancellor Jeremy Hunt in November last year, when he announced plans to extend the freeze by a further two years. These frozen thresholds – combined with rising house prices – have contributed significantly to inheritance tax receipts hitting a record high of £7.1bn in the 2022/23 tax year.

Receipts are only expected to increase over the coming years, and this was confirmed by the latest data released by HM Revenue & Customs for taxes collected in April and May of 2023. This data showed that the amount raised in April and May rose by 9.1 per cent year-on-year to £1.2bn. If this increase holds for the entire year through to April 2024, the tax take would hit £7.7bn in 2023/24.

“The increasing level of IHT receipts by the UK Government clearly demonstrates the need for individuals to be proactive in planning their finances in good time”, commented Andrew Webster, Investment Director at Beringea.

In addition, Andrew said, “The Government announcement to freeze the nil-rate band and residential nil-rate band until 2028 will mean that more and more families will be caught by this tax unless they take positive steps to minimise their potential liability”.

IHT is often referred to as a voluntary tax. This doesn’t mean you can avoid paying tax where it’s due, but there are ways you can reduce your inheritance tax liability, in some cases to nil, by planning ahead.

Stephen Packter, Business Development Manager at Beringea, pulled together an article recently that explores the various options available for inheritance tax planning. You can find his guide here, and if you would like to discuss this further with him, get in touch at info@beringea.co.uk.

You will see that a common solution is using business relief (BR). Money invested in companies that qualify for BR may be free from IHT after just two years. This occurs only if the investment’s been held for at least two years, and the individual is still an investor in the company at the time of death.

This strategy offers faster IHT exemption than giving money away, making it a popular option for inheritance planning. One of the ways to get access to business relief is by investing in an estate planning service, such as the ProVen Estate Planning Service (PEPS).

An estate planning service typically invests in unlisted companies, and each will have a different investment focus. PEPS focuses on two core strategies, both of which qualify for business relief and are focusing exclusively on investing in the UK – solar and lending.

As well as offering the potential for mitigating inheritance tax, an investment in PEPS aims to offer predictable returns as we target capital preservation rather than purely focusing on high growth.

You can read more here about what makes the ProVen Estate Planning Service stand out from its competitors.

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This article is for UK residents interested in finding out more about Business Relief and the ProVen Estate Planning Service strategies. UK tax rules and regulations are subject to change, and such changes may be retrospective. Your ability to obtain tax reliefs will depend on your personal circumstances. It is not our intention to offer legal, tax or investment advice, and we always recommend that investors seek professional advice that can take account of their personal circumstances before making any investment or estate planning decisions. An investment in the ProVen Estate Planning Service should be considered high risk and past performance is not a good indicator of future results.

Important notice: issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ, registered in England & Wales number OC342919 and authorised and regulated by the Financial Conduct Authority, number 496358.