Business property relief is a way that people can get exemption from UK inheritance tax on certain assets, but it comes with a waiting period after the asset purchase. A wealth management firm has rolled out an insurance-based offering to deal with that issue.

Foresight Group, a UK manager of tax-efficient investments, has launched a “solution” that uses an insurance policy to immediately protect beneficiaries of estates, rather than them having to wait for a two-year period.

The firm has rolled out what it calls The Foresight Accelerated Inheritance Tax Solution, blending Business Property Relief – exemption from inheritance tax - and a group insurance policy obtained via the Lloyd’s of London market.

Typically, it takes two years for shares to qualify for BPR. During this period, if the shareholder dies, his or her estate will continue to be liable for inheritance tax on the value of the investment. However, Foresight said its offering is aimed at people who want their assets to be protected immediately from IHT. The insurance policy with a Lloyd's of London syndicate covers the two-year gap between the purchase of a qualifying investment and the availability of BPR.

Already, it is common for people to invest in assets, such as certain types of shares listed on London’s AIM stock market. Such shares carry  reliefs from inheritance tax. As more people are dragged into the net of inheritance, aka estate, taxes because of rising asset values, the issue has become a major focus for long-term estate and tax planning. In 2015/16, HMRC receipts for IHT were the highest ever recorded; generating £4.6 billion ($6.75 billion) in revenues, with the consensus being that this amount will grow still bigger in following years.

Foresight said that under its new offering, if an investor dies during the first two years from entering the Foresight Accelerated ITS, the proceeds of the insurance policy will pay out 40 per cent of the investment to the named beneficiary or beneficiaries, which can be used to offset their IHT liability. After the two-year qualifying period has elapsed, the shares should qualify for BPR, at which point no IHT would be due on their value, subject to the investor continuing to hold the shares at death. Therefore, once this initial two-year period is over, the insurance cover will automatically cease.

Asked about the cost of the offering, Foresight told WealthBriefing: “Foresight pays the premiums on the policy on behalf of investors (meaning investors don’t pay directly for the insurance). There is an annual management charge applied to all investments of 4.64 per cent a year for the first two years, falling to 1 per cent thereafter. Growth on the investment is expected to cover the AMC though there will be little or no additional growth, meaning investors will trade off growth in the first two years of their investment for immediate IHT protection.”

To be eligible for the product, people must have invested at least £25,000.

“Inheritance tax is widely seen as the most unfair tax of all – it can be galling to think that after a lifetime of paying tax building up your estate, your beneficiaries may have to pay another raft of tax when you pass it on. And the products that are already available to mitigate IHT often come with a sting in the tail. For example gifts and trusts can take several years to be fully effective and can mean giving up access to, and control of, assets,” said Hugi Clarke, director at Foresight.

“Anyone with a single estate valued at £325,000, or a joint estate of £650,000, really should be looking to mitigate their IHT risks, as should all of those who are in real danger of house-price increases and inflation pushing them into these brackets in coming years. The Treasury is taking more and more from IHT – people need to plan in advance to protect the assets they have worked so hard to build during their lifetime,” Clarke said.