IHT Planning · 2026 Guide · For professional advisers only
A guide to BR fundamentals, qualifying investments and the impact of recent IHT reform, including the October 2024 Budget cap and the April 2027 pension changes.
The IHT Landscape: Why Planning Has Never Mattered More
by 2030/31
face IHT charges by 2027
since 2009 until 2030
Inheritance Tax has moved from a niche concern for the very wealthy to a material planning issue for a growing segment of UK families. The nil-rate band has been fixed at £325,000 since 2009 and remains frozen until 2030. As property prices and investment portfolios continue to rise, estates that would have sat comfortably below the threshold a decade ago are now firmly inside the 40% tax net.
Rising Property Values
House price inflation, particularly in the South East, means many families now hold estates above the IHT threshold who would not have done so a generation ago. For many clients, the family home alone creates a meaningful liability.
Pension Reform from April 2027
From April 2027, unspent defined contribution pension pots are set to fall within the taxable estate for IHT purposes, fundamentally reversing a long-standing planning assumption that pensions were an efficient vehicle for passing wealth to the next generation.
The October 2024 Budget Cap
The Autumn Budget introduced a £2.5m combined cap on 100% Business Relief and Agricultural Property Relief, effective April 2026. Assets above this threshold will attract a 20% effective IHT rate, half the standard 40%, but a material change for clients with larger estates or existing BR portfolios.
Sources: OBR Fiscal Risks & Sustainability Report | HMRC IHT Statistics | For educational purposes only
Budget Changes & Pension Reforms in Detail
October 2024 Budget — Effective April 2026
£2.5m cap on 100% relief. Combined Business Relief and Agricultural Property Relief at 100% is capped at £2.5m per individual. Spousal transfer rules mean couples can benefit from up to £5m of combined relief.
AIM shares. All quoted AIM assets will now attract a 20% IHT rate, removing the former full exemption that applied after a two-year holding period.
Above-cap rate. Beyond the £2.5m cap, the effective IHT rate on BR-qualifying assets is 20% (half the standard 40% rate).
Pension Reforms — Effective April 2027
Pensions enter the estate. From April 2027, unspent defined contribution pension pots will fall within the taxable estate for IHT purposes, reversing decades of estate planning practice.
The income tax trap. While 25% of pension withdrawals are tax-free, additional withdrawals are taxed as income, potentially pushing clients into higher tax brackets at the point of drawdown.
Early withdrawal surge. Over-55s withdrew £2.3bn from pensions in 2025, a five-year high, as clients sought to reposition assets ahead of the change. Repositioning into BR-qualifying investments can mitigate the new IHT exposure while retaining access to capital.
Subject to parliamentary approval | Pension changes per Finance Bill 2024 | Always refer clients to their tax adviser
What is Business Relief?
Business Relief (BR) is a UK tax relief that reduces, or eliminates, the value of certain business assets for Inheritance Tax purposes. Originally introduced under the Finance Act 1976 and consolidated in the Inheritance Tax Act 1984, BR was designed to prevent families from being forced to sell a trading business to meet an IHT bill on the owner’s death.
Over time, specialist BR-qualifying investment products have evolved to allow individuals to invest in portfolios of qualifying trading businesses. After a two-year holding period, those assets can qualify for up to 100% IHT relief, subject to the new £2.5m cap from April 2026.
(up to £2.5m cap)
holding period
Inheritance Tax Act
Source: Inheritance Tax Act 1984, ss.103–114 | For educational purposes only
How Business Relief Works
The mechanics of BR are straightforward in principle, though qualifying conditions require careful attention both at the point of investment and throughout the holding period.
The client invests in a portfolio of qualifying business assets, typically AIM-listed or unlisted trading companies via a BR-qualifying investment product.
Assets must be held continuously for at least two years. The qualifying clock begins from the date of investment. Replacement relief provisions may apply where qualifying assets are sold and reinvested within the portfolio.
On death, HMRC assesses each holding: is it a trading business? Does it pass the trading purpose test? Are excepted assets, such as surplus cash or investment properties within the business, present?
Where a holding qualifies, its value is deducted from the chargeable estate. From April 2026, relief is capped at £2.5m combined per individual. Assets above the cap attract a 20% effective IHT rate.
⚠ Key Conditions
The two-year qualifying clock runs from the date of investment. Assets must still be held and must still qualify at the date of death — BR is assessed retrospectively.
The £2.5m cap applies across Business Relief and Agricultural Property Relief combined from April 2026.
Qualifying Investments
Unquoted Shares
Shares in unquoted UK or EEA trading companies
Must be a trading business, not investment or land dealing
Shareholding size irrelevant for BR qualification
Business Interests
A sole trader’s interest in their own trading business
A partner’s interest in a qualifying partnership
The whole business must pass the trading test
Excepted assets (surplus cash, investment property) excluded
Quoted Controlling Interests
Shares in a quoted company with voting control
50% relief = 20% effective IHT rate
Rare in most estate planning contexts
Less commonly used in adviser-led portfolios
AIM = Alternative Investment Market | Relief rates per IHTA 1984 s.104 | Always check current HMRC guidance
Comparing IHT Planning Approaches
| Factor | Lifetime Gifting | Discretionary Trust | BR Investment |
|---|---|---|---|
| IHT Effectiveness | 100% after 7 years | Removes from estate over time | 100% after 2 years* |
| Retention of Access | No, asset given away | No, settled into trust | Yes, typically retained |
| Speed of Mitigation | 7 years (PET) | Immediate (but chargeable) | 2 years |
| Control of Asset | Lost on gift | Trustees control | Investor retains |
| Complexity | Low | High (trust structure) | Medium (investment risk) |
| 7-Year Survival Rule | Required | Not required | Not required |
*BR 100% relief subject to £2.5m combined cap from April 2026 | Simplified comparison only, not advice | PET = Potentially Exempt Transfer
Key Takeaways for Advisers
Frozen thresholds, rising asset values, pension reform from 2027 and the Budget cap from 2026 mean more clients need proactive planning than ever before.
The two-year qualifying period compares favourably to the seven-year gifting rule, and clients typically retain access to their invested capital throughout.
From April 2026, 100% relief is capped at £2.5m per individual (£5m for couples). Clients above this threshold need their plans reviewed now.
The inclusion of unspent pension pots in the taxable estate from 2027 will require many existing estate plans to be revisited comprehensively.
The Calculus Inheritance Tax Solution
The Calculus ITS is a Business Relief qualifying investment that takes a differentiated approach to IHT planning. While most BR solutions focus on SME lending, alternative energy or property, the ITS invests in funds that provide secured loans for the production of film and television content, offering genuine sector diversification within a client’s estate plan.
Loans may be secured against pre-sale contracts with top-tier broadcasters and streamers such as Channel 4, Netflix and the BBC, as well as government-backed UK production tax credits. This provides a robust collateral base and a relatively predictable return profile that is less sensitive to economic cycles than many comparable solutions.
Loans secured against pre-sale contracts and approved UK tax credits. Senior secured position with first claim on revenues. Lower risk profile within the ITS. £35m AUM taken over from Alchemy Ltd in 2024.
Up to 25% gap financing, loans secured against unsold distribution rights based on conservative sales estimates. Used to close the final funding gap to greenlight projects. Higher potential return due to increased risk profile.
(depending on fund split)
investment
since 2019
Why the Calculus ITS?
Unlike most BR solutions targeting alternative energy, property or SME lending, the ITS provides genuine diversification through TV and film secured lending.
Loans are secured against robust collateral including pre-sale contracts with top-tier broadcasters and government-backed UK tax credits, making performance relatively consistent.
Loans average 12 to 20 months, providing better liquidity characteristics than many comparable IHT solutions. Clients can typically withdraw if circumstances change.
The investment should qualify for Business Relief on the second anniversary, while clients retain access to and control of their capital throughout.
Calculus Capital has been FCA registered since 1999 and is one of the longest-running small company investment managers in the UK, with an award-winning track record across EIS, VCT and ITS.
Get in Touch
To find out more about the Calculus ITS or to discuss a client’s estate planning needs, please contact:
Francesca Rayneau, Director, Head of Investor Relations
T: 0207 493 4940 |
E: [email protected] |
W: calculuscapital.com
Important Information
This article is for educational purposes only and is intended for professional financial advisers. It does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may be subject to change. The value of investments may go down as well as up. BR-qualifying investments involve a higher degree of risk than many other investment types. Capital is at risk. Investors may not get back the amount originally invested.
Please refer to the Calculus ITS Investor Memorandum and Key Information Document before making any recommendation to clients.