The estate planning landscape in 2021

5 July 2021

Sponsored article. For professional advisers and paraplanners only. Not to be relied upon by retail investors.

The decision to freeze inheritance tax thresholds until 2026 may not immediately appear to be headline news, but it is set to have a major impact on many clients. Jessica Franks of Octopus Investments explains why and how advisers can help.

The 2021 Budget announced freezes to the nil rate band and residence nil rate band. They’re set to remain at current levels until at least 2026.

That means the nil rate band has been frozen for about a decade now at £325,000. The residence nil rate band is set at £175,000. Where there had been the potential for these to be raised in line with inflation, both will remain static for at least the next five years.

With rising asset values, especially rising property prices, it’s inevitable more estates will exceed their available allowances. In fact, the freeze could affect as many as one in three (31%) clients, according to a survey of financial advisers from Octopus Investments – almost double the number (17%) of advisers felt would be impacted by a similar freeze to the pensions Lifetime Allowance (LTA).1

Thankfully, estate planning is an area where advisers can add significant value for clients.

Uncertain times

While some start thinking about inheritance tax (IHT) as early as their fifties or sixties, the reality is that it’s common for people to think about their estate much later in life.

When a client is in their eighties or nineties, it’s less likely a lifetime gift will work as intended, because they need to survive the seven-year taper. That can lead some clients to believe they’ve left it too late to plan their estate.

This is a legitimate concern. The most recent data available shows £197 million was raised from failed lifetime gifts in the 2017/18 tax year alone.2

The simple answer would be to put planning in place sooner. But the younger a client is, the stronger their concerns are likely to be about access and control of their wealth. Add to that, the ongoing challenges of the pandemic which have caused some clients to feel even more uncertain about their mortality and how much money they’ll need to access in the future.

Making lifetime gifts puts capital permanently out of reach. Even when a client is shown, with the help of cash flow modelling, that they can comfortably afford to make gifts from their estate, it’s natural for clients to feel uncertain. How long will I live? What if my needs change? Will my costs increase, perhaps to pay for care fees?

This year is an ideal time to look at how you can maximise client outcomes and offer peace of mind.

That’s where investments that qualify for Business Property Relief (BPR) can help. BPR can really help unlock client conversations. Even if the client ends up going down a different route.

The benefits of BPR

BPR offers two significant advantages. Speed and access.

Once a BPR-qualifying investment is held for two years it becomes zero-rated for IHT. The client must also hold the investment until death, at which time it should pass on free from IHT.

In return for making a higher risk investment, clients can benefit from a two-year clock which is significantly shorter than the seven years typical for gifts to become fully exempt.

Because the client is making an investment, it also means they can request access to their capital at any time. This is, of course, subject to liquidity being available.

Feel confident recommending BPR

BPR is more than 40 years old and has stood the test of time. It’s been supported by all governments in place during that time and, although changes have been made to it, they have all been to broaden its scope and make it more generous, rather than to limit its use.

Despite the longevity of BPR, there is always concern from advisers new to these investments that the relief could be removed. We are sometimes asked what would happen in that case. It’s a good question, with an important answer.

One of the key things with BPR is that it’s an investment.

So, unlike other estate planning, where you’re making a decision you can’t undo, like making a gift, if the BPR rules were completely removed, you wouldn’t get any IHT benefit, but you’re still holding an investment.

Why the relief is supported and important

BPR-qualifying investments are typically in unlisted and AIM listed trading businesses, operating in a wide range of sectors. BPR qualifying companies help build a better future acting as a hub for productivity and employment, not just through jobs they create themselves but through the industry that can build up around them. As they are unlisted or AIM Listed trading companies, this brings inherent risks for investors. The tax relief provided is an incentive to invest in companies that are important to the UK economy.

So when it comes to BPR-qualifying investments, you should remember that the value of an investment, and any income from it, can fall as well as rise. Tax treatment depends on individual circumstances and tax rules could change the in the future. Tax relief depends on portfolio companies maintaining their qualifying status. The shares of smaller and unquoted companies could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.

Learn more at the Estate Planning Show

Tune into the Estate Planning Show to find out more about estate planning in 2021. As well as refreshing your knowledge of IHT, we cover detailed client scenarios that could help you spot planning opportunities and turn them into business.

The two-part show is available on demand. Attendees will receive a total of 3 hours’ CPD. Watch at

1Research was conducted by Opinium amongst 208 financial advisers between 29 April and 4 May 2021

2 More heirs hit by inheritance tax as families fall foul of gift rules, Financial Times, 4 December 2020


BPR-qualifying investments are not suitable for everyone. The investments discussed are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. This article does not constitute advice on investments, legal matters, taxation or any other matters. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: June 2021. CAM0110108.




Professional Paraplanner