As a parent, you will want to do all you can to help your children have a financially stable future, especially with the uncertainty triggered by the coronavirus pandemic.

So, in this blog, I’ll explain how careful tax planning can help your family to live more comfortably and securely in the years to come.

Inheritance tax explained

There’s been a blurring of the lines between tax avoidance and tax evasion in recent years. But the fact remains that it’s legal for you, as a taxpayer, to plan your affairs to ensure tax efficiency for yourself and your family. What’s more, you may see it as your duty to protect your family’s wealth.

If you’re a business owner, you may already be aware of the opportunities to ease your income tax and capital gains tax (CGT) burden. But one area that is often overlooked is inheritance tax (IHT).

There are various Government tax allowances and reliefs available that could help to prevent a hefty IHT bill heading your way. And remember, the sooner you start planning, the better chance you have of helping your family to have a more secure financial future.

Business property relief

Business property relief (BPR) can reduce the value of your business property when it’s transferred during your lifetime or after your death. This property includes certain business assets and interests.

BPR can potentially exempt 100% of the value of an asset from your estate when you die, if you’ve owned that asset for at least two years. So, if your shares are worth £1m at the date of your death, this relief could prevent a 40% IHT bill – a saving of £400,000.

Can I claim BPR?

Typically, HMRC will look at two areas when deciding if the relief is available to you.

Firstly, does your trading company qualify? If your company has made multiple investments over the years and the trade has reduced due to a deterioration in trading conditions, this could cause an issue. If this is the case, you could put planning in place to protect the part of your business that is still entitled to BPR.

Secondly, research has shown that many companies are sitting on large amounts of cash due to the uncertainties of the last decade. As a director, you may be tempted to invest the cash to produce a good return in the company. But accumulating money in this way and then investing it to maximise the return could create an IHT liability if any of the shareholders were to die.

However, with thought and careful planning, it might be possible to extract the cash from your business in a tax-efficient way. This would at least stop the problem from escalating to the point that BPR is denied.

Family investment company

One method of extraction is for you to create a family investment company (FIC), which is a private company whose shareholders are members of your family. An FIC can reduce IHT on cash and non-BPR assets, while at the same time providing an income tax efficient wrapper for your investments due to the low rates of corporation tax.

If, for example, shareholders were to remove £500,000 in cash from a trading company and invest it in an FIC, the company might buy several properties from which it receives an income. This income would be taxed at the corporation tax rate (currently 19%), rather than being taxed at 40% (or even 45%).

Loan accounts

If you have a large amount of money owed to you from your company, this will form part of your estate on death. That means you’ll pay tax on the value of the loan (up to 40%).

In this situation, it’s worth considering tax planning opportunities, such as assigning the loan to your other family members or converting it into share capital.

Helping you plan

These are just a few of the inheritance tax planning ideas that our team at Churchill Taxation can assist you with.

There are many more areas where our professional tax advisers could add value to your family’s wealth. With our help, you’ll ensure that when the time comes, more of the funds you’ve built up over the years will go to your family, and not the taxman.

Call us today on 07813 434195 or send an email to

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation