Inheritance tax – Investors who want to settle assets into trust

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

This article is adapted from Octopus Investments' publication "Identifying clients who could benefit from BPR-qualifying investments" and it is reproduced with its permission. Read more about Octopus Investments

The article has been written in accordance with Octopus Investments’ understanding of the law and interpretation of it at the time of publication: remember tax rules can change and benefits depend on circumstances.

Important:The example scenario that follows is for illustration purposes only and assumes that the nil-rate band is offset against other assets. It is important to note that the risk profile of each portfolio, and any investment growth or losses, is likely to differ. The tax benefits of the BPR portfolios could mitigate the additional risks investors are taking with their money. The scenario assumes the costs for each portfolio are the same, but actual costs may be different.


Settling assets into trust is a way of reducing a potential inheritance tax bill as they are no longer part of your estate.

With a discretionary trust, however, investors are subject to a ‘chargeable lifetime transfer’ – a charge of 20% on the amount settled in excess of the investor’s nil-rate band.

This charge can be effectively eliminated by investing in BPR-qualifying shares and then settling those shares into trust after two years, after which time they should become exempt from inheritance tax.

Louise wants her wealth passed down 

Louise wants her wealth passed down to her younger generations. One of her biggest concerns is that the marriage of one of her children could end in divorce. Louise wants to make sure that her grandchildren will benefit from her wealth, rather than her assets being lost through any divorce proceedings.

Louise wished to settle her existing share portfolio worth £600,000 into trust for her children and grandchildren. As she has not previously made any gifts or set up any trusts, she will be able to put the first £325,000 (the nil-rate band) into trust with no charge. Anything settled into trust over £325,000 would immediately trigger a chargeable lifetime transfer of 20%. This would reduce the amount in the trust by £55,000.

If Louise were to die within seven years of setting up the trust, further inheritance tax would also be payable.

How a BPR-qualifying investment can help

Louise could consider selling her share portfolio and reinvesting the proceeds into a BPR-qualifying investment.

Once the BPR-qualifying shares have been held for a minimum of two years, they should be exempt from inheritance tax. Louise can then transfer the shares into a discretionary trust and no chargeable lifetime transfer will be payable.

If the trust continues to hold investments that qualify for BPR, there will be no future inheritance tax charge on the trust and no further charge on her estate if she dies within seven years. 

 

Key investment risks

  • The value of a BPR-qualifying investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
  • Tax treatment depends on individual circumstances and could change in the future.
  • Tax relief depends on portfolio companies maintaining their BPR-qualifying status.
  • The shares of unlisted or smaller companies (including AIM-quoted shares) 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.
  • BPR-qualifying investments are not suitable for everyone. Neither Wealth Club nor Octopus Investments offer investment or tax advice or personal recommendations. If you are unsure an investment is right for you, please seek specialist advice. 

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Important: The information on this website is for experienced investors. This is a very short summary of a complex subject. It is not advice nor a personal recommendation. This article is intended solely to provide basic information – neither Octopus Investments nor Wealth Club offer investment or tax advice. If you are unsure, please seek specialist advice. Investments that qualify for inheritance tax relief place your capital at risk, and the value of the investment can fall or rise.


Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

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