Clients looking to reinstate lost RNRB and maximise inheritance tax allowances

About this scenario

Business Relief and trusts can help clients regain the residence nil rate band (RNRB) and maximise new inheritance tax (IHT) allowances. This scenario shows how advisers can use Business Relief (BR) investments and trusts to help clients pass on more wealth efficiently.

We created this tax planning scenario to help advisers develop suitable planning strategies for clients. It does not provide advice on investments, taxation, legal matters, or anything else. As you know, tax-efficient investments aren’t suitable for everyone.

Any recommendation should be based on a holistic review of a client’s financial situation, objectives and needs. Before recommending an investment, you should also consider the impact of charges related to the product, such as initial fee, ongoing fees, and annual management charges.

Meet Diane, who wants to maximise her IHT allowances

Diane is in her early seventies, widowed with an estate valued at £3 million, mainly in listed shares, pensions and property. She is concerned about the pension changes taking effect on 6 April 2027, as pensions will become subject to IHT, reducing the amount that can be passed on to her loved ones.

Due to the size of her estate, the residence nil rate band taper restrictions apply, meaning she has lost her RNRB allowance and the RNRB she received from her late husband. She wants to regain some or all of this allowance and maximise other inheritance tax allowances available to her. She still wants to retain some level of control over how and when assets are passed on to her children and grandchildren.

An estate planning solution

Diane’s adviser explains from 6 April 2026, there is a new IHT allowance, a £2.5 million unquoted Business Relief Allowance which applies to unquoted Business Relief investments (private company shares, partnership interests and sole traders), and agricultural property. Amounts within this allowance attract 100% relief from IHT and amounts above this allowance will attract relief at 50%.

Her adviser assesses her needs, objectives and appetite for risk and recommends redirecting £1 million worth of her assets into an unquoted BR portfolio, such as the Octopus Inheritance Tax Service (OITS). This combined with trust planning, can achieve her objectives of maximising her IHT allowances:

Maximise BR unquoted allowances:

He explains that the unquoted BR allowance is reset every 7 years, which gives her the opportunity for more BR planning with 100% IHT relief.

Frees up the NRB and RNRB:

Importantly, BR qualifying assets do not use up other IHT allowances like the nil rate band (NRB) or the residence nil rate band (RNRB), unlike other assets.

Tax efficiently regaining the RNRB with a BR gift into trust:

A gift of a BR qualifying investment held for two years, can help to regain some or all of lost RNRB while providing relief from chargeable lifetime transfer (CLT) IHT charges. Any capital gain on the gift could also be deferred.

After discussing her options with her adviser, Diane invests £1 million into the unquoted BR portfolio. She has sufficient income and assets for her retirement.

After holding the unquoted BR investment for two years, she gifts it into a discretionary trust set up for her family’s future benefit. The trust structure also allows Diane to retain control over future distributions and tailor the arrangement to her wishes. The gift into trust should not give rise to a CLT and she has now regained her RNRB in full. Additionally, the trust now also has a £2.5m BR unquoted allowance to use against trust exit or periodic charges.

How it works in practice:

* Provided the trust retains the investment until Diane’s death.

Unique BR benefits for death within seven years or after seven years of the gift

If Diane were to die within seven years of making the gift, provided the trust is still holding the asset at her death, no further IHT should be due by her estate, unlike non-BR gifts which require seven years to be free from IHT.

Compared to a similar strategy using a non-BR qualifying assets, the IHT outcome would be significantly higher.

If she survives more than seven years after making the gift, the BR allowance resets. No IHT should be due, and this allows a further BR investment, which would qualify for 100% relief after two years.

Business Relief stands out as a flexible tool that can be used alone or alongside other estate planning strategies, like trusts, to maximise IHT allowances and pass more wealth to loved ones.

Notes and assumptions:

Tax rates and allowances are correct for the tax year 6 April 2025 to 5 April 2026.
From 6 April 2026, a £2.5 million Individual BR Allowance will be introduced that applies to investments in qualifying assets, unquoted investments (private companies, partnership interests and sole traders) and agricultural property. Amounts up to that allowance are free from inheritance tax. Qualifying investments above this allowance attract relief at 50%. Until 6 April 2026, BR continues to be available at 100% IHT relief on all qualifying investments to an unlimited value.
For ease of comparison, we’ve assumed no gains or losses on the assets referenced, and no product fees or charges paid for financial advice have been included which may apply.

Risks to bear in mind

Capital at risk

BR-qualifying investments are high-risk. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.

Tax treatment may change

Tax treatment depends on individual circumstances and tax rules could change in the future.

The investment may be volatile and difficult to sell

The shares of unquoted companies could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.