How Investing In Startups Can Lower Your Inheritance Tax Bill
This article is for informational purposes only and does not constitute financial, tax, legal, or investment advice. Always speak to a professional before making any investment or inheritance planning decisions.
This article is for informational purposes only and does not constitute financial, tax, legal, or investment advice. Always speak to a professional before making any investment or inheritance planning decisions.
Inheritance Tax (IHT) in the UK has undergone significant changes, with the most recent adjustment occurring in April 2025. The system has shifted from a domicile-based approach to a residency-based one, affecting individuals residing in the UK.
Currently, a 40% tax applies to portions of an estate valued over £325,000. However, gifts given seven or more years before the individual's death may be exempt from this tax.
Business Relief allows certain business assets, such as shares in unlisted companies, to be transferred free from inheritance tax. To qualify for 100% tax relief under BR, the following conditions must be met:
Shares must be held for at least 2 years. Shares should not be sold before the holder's death. The company must be actively trading and unlisted.
This article is for informational purposes only and does not constitute financial, tax, legal, or investment advice.
The UK government offers the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) to encourage investment in high-risk startups. These schemes offer several benefits, including:
Income tax relief. No capital gains tax after 3 years. Tax relief on losses. Inheritance tax relief after 2 years through Business Relief.
Investments in EIS or SEIS qualifying companies that are held for at least 2 years may be exempt from inheritance tax. For example, an investment of £200,000 in an eligible startup that appreciates to £400,000 would not be included in the estate for inheritance tax calculations, potentially saving £160,000 in taxes.
The 2-year period for Business Relief begins when shares are issued, not when funds are transferred to a manager. Investors should be aware of this timing to ensure compliance with the relief conditions.
Investing in SEIS/EIS companies remains high-risk, with a reported failure rate of around 60% for UK startups. Changes in a startup's trading status or ownership can affect the availability of tax relief.
The UK government provides substantial inheritance tax incentives through SEIS, EIS, and Business Relief, encouraging investment in early-stage startups. However, potential investors should carefully assess the risks involved.
Based on reporting by techround.co.uk.
