2-Year Inheritance Tax Scheme

If you give away an asset, you normally have to survive 7 years before the gift is outside your estate for Inheritance Tax (IHT).

You might well have the capital to give to your children but you might be scared you will need to get it back, for example to pay for care fees.

Or you might be in poor health and worry that you might not survive the seven year period.

There are a range of estate planning products out there, which are designed to take advantage of Business Relief (BR), which means you only have to survive 2 years rather than seven.

Some of these providers have very large fees, which reduce the overall IHT saving. However, there is one provider out there who regularly gets returns of 5-6% per annum. If they fail to achieve 6%, they do not charge any on-going fees at all (they make their money from the borrowers they lend money to for building projects). And their only initial fee is 1% if you select the "income" option but nothing if you selected the "growth" option.

The current annualised return (2026) is 5.45%, well in excess of the top savings accounts. But unlike a top savings account, your capital will be exempt from IHT after two years.

The beauty of this plan is you can access your capital if you need it, unlike a standard 7-year plan where once given away, you cannot get it back.

If you are married and do not survive 2 years, the investment would pass to your widow (there is no IHT due on money left to spouses) and the clock would continue from when you started the investment, not when your wife inherited it. For example, if you died 18 months after taking out the investment, your wife would only need to hold it for a further six months (and still hold it at death) to be exempt from IHT.

To date, they have offered a rights issue every year, which means if you already have money invested, your top-up does not need to wait for two years to be exempt from IHT.

Please note that to qualify, the investment has to be in BR qualifying businesses which by their very nature, are not regulated by the Financial Conduct Authority (FCA). So these types of investments are not covered by the Financial Services Compensation Scheme (FSCS).

Whilst all BR products are classed as high risk, within the sphere of BR, there are two types of products: Estate Preservation and the Alternative Investment Market (AIM). We only ever recommend products from the estate preservation stable.

In summary, BR products are good for people who want to avoid IHT but might their money back and also for people who want to gift money to their loved ones but don't think they will last seven years.

Whilst our standard investment portfolios in ISAs, GIAs and pensions aim for a net return of 10% per annum, these assets will form part of your estate for Inheritance Tax, so the government would take up to 40% of their value. A lower return of 5.45% per annum but exempt from IHT is not to be sniffed at.

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