In this article Julia Peake, Technical Manager at Nucleus has picked some topical technical questions they’ve recently received, which may help you in your day-to-day work or if you have exams on the horizon.
Question 1:
We are working with a client who currently has investments in an AIM portfolio, and they are looking to replace these with assets, which would achieve 100% relief on the first £2.5m, due to the changes in the rate of business relief now applicable to 50%.
Have we now had any clarification on how the replacement relief rules are now applied and any limitations?
Answer: Firstly, we would always say that the client should speak to their regulated tax adviser about tax planning and how any change in rules may impact them.
HMRC have recently updated the inheritance tax manual on this subject. An update from 7th April 2026 states that relief may be restricted and that the relief shall not exceed what it would have been, had the replacement or any one or more of the replacements not been made.
There is also a specific note that this provision also limits relief where property, which qualified for 50% relief, is replaced by property which qualifies for 100% relief.
Examples of how this would work in practice are set out in the manual, and the links below.
What this shows is, when AIM shares are sold and replaced with shares in an unquoted company with 100%, the replacement shares need to be held for a fresh two-year period before full Business Relief is available.
If death occurs before that, the relief can be restricted.
IHTM24113 – Replacement property: Example of limiting the relief – HMRC internal manual – GOV.UK
Question 2:
We are working with a client who has an investment in trust and the father and the daughter are trustees. There is increasing concern over the cognitive abilities of the father and it is believed he may have dementia.
The daughter/Trustee is looking at getting a power of attorney (POA) established for her father.
Will we need to replace the father as trustee, bearing in mind this is settlor interested trust?
What are the steps for this to happen, could we just leave the daughter as the trustee?
Answer:
The daughter should seek immediate legal advice around this to see what the trust deed states about replacing a trustee when a trustee becomes incapacitated.
If one of the trustees is no longer mentally capable then they, under law, cannot act as a trustee. S.35 and 36 of the Trustee Act1925 gives a statutory provision to allow trustees or their duties to be replaced/ discharged temporarily.
S35 states a trustee’s duty can temporarily discharged to another person under a POA for up to 12 months but this is usually if the trustee is unavailable due to long term holiday for example.
If the trustee lacks mental capacity, then the POA can be revoked. S36 states how to replace trustees if the deed is silent Trustee Act 1925.
Putting a POA in place for someone who has lost capacity and is currently trustee does not mean that the POA can act as the trustee in most cases and the incapacitated trustee should be replaced.
However, if the incapacitated trustee has a beneficial interest in the trust, permission to make such an appointment may first be needed from the Court of Protection (COP).
From a trust administrative point of view and depending on the deed itself there may be a minimum number of trustees required, and it is recommended that there should be more than 1 trustee in case that sole trustee dies or becomes incapacitated themselves.
The daughter should seek immediate legal advice on this before putting anything in place as it may need an application to the COP depending on the circumstances.
Question 3:
A client has £60,000 of taxable income made up of savings interest, dividend income and pension income. None of it is relevant earnings.
If they make a £3,600 pension contribution, they will get 20% income tax relief credited at source. Could they then claim higher rate relief on the contribution in addition?
Or is tax relief limited to basic rate relief at source if they have no relevant earnings?
Answer:
Tax relief is limited to 100% of relevant earnings or £3,600, whichever is greater, in the tax year the contribution is paid.
Neither dividends nor pension income are relevant earnings so this client would only receive tax relief on a pension contribution of up to £3,600 gross.
However, even though a large contribution isn’t possible, making the £3,600 gross to a relief at source scheme (e.g. a personal pension) would expand the basic rate income tax band by this amount, which may reduce the client’s overall income tax bill.
Main image: Q&A, question, wesley-tingey-FIq7K_wD4jM-unsplash
