Terminology explained

Minimum holding period

The minimum amount of time an individual must hold BR qualifying shares in order to be able to claim IHT relief.

Potentially Exempt Transfer (PET)

A Potentially Exempt Transfer allows for unlimited value gifts that become exempt from IHT if the donor survives for seven years after the gift. If the donor does not survive this period, the gift reduces the donor's available Nil Rate Band (NRB).

What is the two year holding period?

There is a minimum two-year holding period to qualify for BR and an individual must be holding the shares at death for their value to qualify for IHT relief. As a result, they could be holding them for years longer than the minimum holding period.

BR qualifying shares and Replacement Relief

If the shares which qualify for Business Belief are sold, the relief can be maintained if the original shares are replaced by the purchase of new BR qualifying shares.

The replacement shares must be bought within three years of the disposal of the original BR qualifying shares. BR applies, provided the ownership periods of qualifying assets total at least two years in a continuous five-year period immediately before transfer/death.

Death during replacing BR qualifying shares

If the individual dies while they are in the process of replacing the BR qualifying shares, i.e. not actually holding the replacement BR qualifying shares – they won’t get the IHT relief.

Inheriting the shares and the rules of ownership

If the shares are inherited, they are deemed to have been owned from the date of death, unless they are inherited on the death of a spouse or civil partner. In this case, the surviving spouse or civil partner is treated as having held the relevant shares from the original date of investment by their deceased spouse or civil partner, rather than the date of death.

Case Study

Take a look at how the Replacement Relief impacts Sunil’s estate planning

> Fatima gives shares in an unquoted trading company, ABC Limited, with activities that qualify for BR to her son Sunil in April 2020.

> Having held the shares for three years, Sunil sells them. Then in April 2024, he reinvests all the proceeds into new shares in another unquoted trading company with activities that qualify for BR, XYZ Limited.

> Fatima dies in April 2024.

> Sunil dies later in September 2024

At death, Sunil held the shares, and had held them for at least two out of the previous five years, meaning they qualify for BR by way of Replacement Relief.

As Fatima died within seven years of gifting the shares the transfer becomes a failed PET. However as they were BR qualifying at the time of transfer, and remained in BR qualifying assets at the time of her death, there is no additional liability to IHT.

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Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.

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