“With careful planning”, says David Semmens in The Daily Telegraph, business property relief can “reduce or even negate inheritance tax on all your assets, business or otherwise”.
Say you and your spouse jointly own a house and investments worth £1m in addition to £750,000 worth of family company shares (classed as Relevant Business Property and so IHT-exempt).
Assuming you die within a couple of years of each other and those values remain the same, there will be no IHT on £700,000 (the value of your combined 2010 IHT nil-rate bands) and no tax due on the £750,000 business assets. That still leaves a £120,000 bill (40% of the other £300,000).
So your will should leave the business assets to a “discretionary trust of which your spouse and children are potential beneficiaries and your spouse one of the trustees”. After your death, your executor trustee could then give those assets to your spouse “in exchange for an ‘IOU’ secured on the family home”.
That debt reduces your spouse’s net estate to below the £700,000 IHT-free band, so there is no tax to pay. One to seek tax advice on.