Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.
Published: July 2025 | Reading time: 12 minutes
EIS/SEIS investments are high-risk investments in early-stage companies. You could lose all your money and capital is totally at risk. Tax reliefs depend on your individual circumstances and may change. You should seek independent financial and tax advice before investing.
This article provides general information on inheritance tax planning, including through high risk startup investments that can go up or down in value, and be illiquid for long periods. Tax benefits depend on individual circumstances and legislation, which can change. This article should not be considered advice and is for informational purposes only. Every effort has been taken to ensure the accuracy of the information at the time of publishing. You should seek independent financial and tax advice before making investment decisions.
Traditional inheritance tax planning: The essential first steps towards reducing IHT
What investments qualify for inheritance tax relief? (Tax reliefs are subject to status and change)
Including startup investments with traditional inheritance tax planning
Understanding the risks and concerns with startup investments
Inheritance tax receipts hit record highs in 24/25, with HMRC collecting £8.2 billion, a 10.8% increase from the previous year's £7.5 billion. The Office for Budget Responsibility forecasts receipts will reach £9.1 billion in 2025-26, continuing the upward trajectory. Below is the complete guide to protecting your family's wealth.
A combination of traditional inheritance tax planning, with the addition of Business Relief (previously referred to as Business Property Relief or BPR) can provide an effective way of tackling inheritance tax. Business Relief investments could provide up to 100% inheritance tax relief, on up to £1m in assets (reduces to 50% inheritance tax relief above £1m) that are held for a minimum of two years at the time of passing.
Inheritance tax is charged at 40% on estates over £325,000 (£500,000 if leaving the main residence to children). For couples, the combined threshold can reach £1 million. An estate worth £2 million could face approximately £400,000 in inheritance tax without proper planning.
The main strategies often used to manage inheritance tax include:
Annual gifting - £3,000 per year
Seven-year rule - Larger gifts become tax-free after seven years
Business (Property) Relief - up to 100% relief on qualifying business investments
Charitable giving - Reduces tax rate from 40% to 36%
Pension planning - Pensions, at present, often pass tax-free
Life insurance - When placed in a trust, it does not incur IHT
Trust structures - Placing assets in a trust ensures they are not included when valuing an estate, though they are subject to tax in other ways
Tax-efficient investments - EIS/SEIS investments can offer IHT relief through the Business Property Relief
Inheritance tax is a 40% tax on estates worth more than £325,000 when someone dies. The tax applies to the total value of property, money, and possessions above the threshold. For married couples and civil partners, the threshold can effectively double to £650,000 by transferring unused allowances.
Before exploring solutions, it's crucial to understand the potential inheritance tax exposure. Many families are surprised to discover how much tax their estate might face.
Find out the potential inheritance tax liability in under 2 minutes with our interactive calculator. Simply enter the value of assets, including property, and the personal circumstances to see:
The estimated total inheritance tax liability
How much a family would receive after tax
Potential savings through different planning strategies
Estimate the potential IHT liability for an estate.
Estimated IHT Due (at 40%)
£0
Understanding your potential tax liability could help you choose the most appropriate planning strategies. Once you know your potential tax bill, you can assess which combination of traditional methods and investment strategies might work best for your circumstances.
The UK faces an unprecedented inheritance tax situation that is getting worse each year. With the nil-rate band frozen at £325,000 until 2030 and property prices continuing to rise, more families than ever face the reality of 40% tax bills on their life's work.
Inheritance tax receipts reached £8.2 billion in 2024-25 the highest on record
Nil-rate band frozen at £325,000 since 2009, with no increases until 2030
Average house prices now exceed the inheritance tax threshold in many parts of England
The combination of frozen tax thresholds and rising asset values creates a perfect storm. An estate worth £1 million today faces a potential £270,000 inheritance tax bill. For many families, this represents years of income tax that must be paid from their loved ones' inheritance.
Tax payers can manage inheritance tax through seven main strategies: maximising their £325,000 nil-rate band, using the £175,000 residence nil-rate band for family homes, making annual gifts within allowances, utilising the seven-year rule for larger gifts, leaving money to charity, considering life insurance, exploring trust structures (including placing a life insurance policy in trust), and investing in qualifying business assets that receive up to 100% relief.
Before exploring advanced strategies, it's important to understand and implement the fundamental inheritance tax planning methods. These form the foundation of any comprehensive approach:
Every UK resident gets a £325,000 inheritance tax-free allowance. For married couples and civil partners, this can be doubled to £650,000 by transferring any unused allowance from the first partner to pass away.
Action required: Ensure your will is structured to maximise both partners' allowances where applicable.
If you're leaving your main residence to direct descendants (children, grandchildren, etc.), you may qualify for an additional £175,000 allowance, potentially taking your total tax-free threshold to £500,000 (£1 million for couples).
Important limitation: This allowance is tapered away for estates over £2 million.
You can gift £3,000 annually without inheritance tax implications, plus £250 per person to unlimited recipients, £5,000 to children on marriage, £2,500 to grandchildren on marriage, and £1,000 to others on marriage. You can also carry forward one year's unused annual allowance.
£3,000 per year (can carry forward one year)
£250 per person to unlimited recipients
£5,000 to children on marriage
£2,500 to grandchildren on marriage
£1,000 to anyone else on marriage
The seven-year rule means gifts above annual allowances become completely tax-free if you survive seven years after making them. If you die within seven years, the gifts may be subject to inheritance tax at a tapered rate.
Years 3 to 4: 20% reduction (tax is charged at 32%)
Years 4 to 5: 40% reduction (tax is charged at 24%)
Years 5 to 6: 60% reduction (tax is charged at 16%)
Years 6 to 7: 80% reduction (tax is charged at 8%)
Leaving 10% or more of your taxable estate to charity can reduce the inheritance tax rate on the remainder from 40% to 36%.
Various trust structures can help remove assets from your estate, though these are complex and require professional advice. Growth is typically periodically taxed.
For those considering life insurance policies, policies held that are not in trust will be subject to inheritance. When considering life insurance, one may wish to place it in trust for this reason.
This is where most traditional advice stops, but it's actually where we believe the most powerful opportunities begin. Certain investments can provide up to 100% inheritance tax relief while offering growth potential, though they also increase risk to capital.
Investments that may qualify for inheritance tax relief include AIM-listed shares (through ISAs or direct ownership), unlisted trading company shares, controlling shareholdings in quoted companies, certain partnership interests, and qualifying EIS/SEIS investments. Business Property Relief can provide up to 100% inheritance tax relief on these qualifying assets after two years.
Several investment options can provide inheritance tax advantages, though they vary significantly in their effectiveness:
Since 2013, ISAs can hold AIM-listed shares, some of which may qualify for Business Property Relief after two years. This creates a useful but limited opportunity:
£20,000 annual ISA allowance (£40,000 for couples)
Up to 100% inheritance tax relief on qualifying shares (This will change to 50% on April 6 2026)
Income and capital gains tax-free growth
Limited annual allowance restricts the impact
Not all AIM shares qualify for Business Property Relief
Requires careful selection for tax qualification
Business (Property) Relief (BR or BPR, depending on who you ask) is an inheritance tax relief that can provide up to 100% tax exemption on qualifying business assets held for at least two years. Unlike other reliefs that offer partial benefits, BR can significantly reduce inheritance tax on qualifying investments, including shares in unlisted trading companies and certain AIM-listed companies.
Business Relief could provide up to 100% inheritance tax relief on qualifying business investments after two years. Qualifying investments may include:
Shares in unlisted trading companies
AIM-listed trading companies (From April 6 2026 these will receive 50% iht reduction, not 100%)
Controlling shareholdings in quoted companies
Certain partnership interests
The key advantage: Unlike other inheritance tax reliefs that provide partial benefits, BR can provide up to 100% inheritance tax relief on qualifying assets.
*See qualifying opportunities: Our current EIS and SEIS investment opportunities qualify for Business Relief after the two-year holding period.
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.
Pensions can be inheritance tax-efficient, particularly for those who don't need to access their pension funds. Uncrystallised pension funds, at the time of writing this, can often be passed on without inheritance tax.
Most advisors stop here, but there are additional investment opportunities that can offer further relief.
Startup investments, through EIS and SEIS schemes, can qualify for up to 100% inheritance tax relief via Business Property Relief after two years. They can also provide income tax relief, capital gains tax exemption on qualifying disposals, and capital gains tax deferral when reinvesting existing gains. S/EIS investments are high risk investments and are not suitable for everyone. The value of investments can go down as well as up, and you should be prepared to lose what you invest in startups.
Tax reliefs are always subject to status and change and how much an individual can claim will be determined by personal tax circumstances. Not all investors will qualify for all reliefs. Always seek professional tax advice.
Startup investments through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) could offer what we believe may be a unique combination of benefits:
EIS: The potential for 30% income tax relief (on up to £1 million invested annually, £2 million if the companies qualify as knowledge intensive)
SEIS: The potential for 50% income tax relief (up to £200,000 annually)
The possibility of up to 100% capital gains tax exemption on qualifying disposals (on shares held for a minimum of three years)
The option of deferring a capital gain tax by investing the gain into an EIS
The option of reducing a capital gain tax by investing the gain into an SEIS (referred to as SEIS reinvestment relief)
The potential for up to 100% inheritance tax relief after two years via Business Property Relief
No annual limits on qualifying investments (subject to individual circumstances)
Most people don't use startup investments for inheritance tax planning because of the level of risk involved. Investing in early-stage businesses is very risky. Research by UK Money found that 60% of new businesses fail in the first three years.
For this reason, and others, financial advisors typically focus on traditional insurance products and other methods of accessing Business Relief.
Other reasons advisors do not often utilise SEIS and EIS investments:
Quality startup investments are not always publicly available through traditional channels
The connection between startup investments and inheritance tax planning isn't widely understood
The due diligence requirement for early-stage investments requires expertise that many advisors don't possess
Regulatory complexity makes it difficult for advisors to recommend without specialist knowledge
The most effective inheritance tax strategies don't replace traditional planning entirely—they enhance it. By combining SEIS, EIS and other BPR investments with conventional methods (maximising allowances, gifting, proper will structures), you can create a comprehensive approach that maximises tax efficiency whilst managing risk appropriately. Some of these investments may even offer additional tax reliefs and wealth creation opportunities.
Foundation layer: Traditional methods. Start with the fundamentals that every family should implement:
Maximise nil-rate band and residence nil-rate band allowances
Use annual gifting allowances consistently
Consider life insurance where appropriate for liquidity
Ensure wills are properly structured
These traditional methods provide a solid foundation and should remain part of any comprehensive strategy.
Enhancement layer: Business Property Relief investments Once traditional methods are in place, BPR investments can provide the additional relief typically sought by larger estates:
Fill the gap where traditional methods reach their limits
Provide up to 100% inheritance tax relief on the amount held in qualifying assets
May offer additional income tax benefits and the option to reduce other capital gains
Create the potential for wealth growth alongside tax planning
The following are worked examples for illustration purposes only. These scenarios are constructed to demonstrate potential tax planning strategies and should not be taken as advice or interpreted as predictions of likely performance. Actual results may vary significantly. Past performance is not a reliable indicator of future results, and valuation increases do not guarantee successful exits.
Important: These examples assume continued availability of tax reliefs, which depend on individual circumstances and may change. All tax benefits are subject to HMRC qualification, and professional advice should be sought before implementation.
A £2 million estate would typically face £400,000-£540,000 inheritance tax depending on circumstances. For a married couple with children, the combined nil-rate bands and residence nil-rate bands allow for £1 million of the estate to be passed on to loved ones without incurring inheritance tax. The remaining £1 million would be subject to inheritance tax at 40% meaning an IHT bill of £400,000.
BR qualifying investments, including those made through EIS and SEIS can be used to reduce the IHT liability.
Example situation: A Couple with a £2 million estate facing a potential £400,000 inheritance tax liability
Add £200,000 in EIS investments
Add £100,000 in SEIS investments
Assuming the SEIS and EIS investments are held for a minimum of three years at the time of passing, these assets will fall outside of the estate and not incur inheritance tax. This would reduce the IHT liability from £400k to £280k.
In addition, the initial investments may provide income tax relief of £110,000 (EIS income tax relief = £200,000 * 30% and SEIS income tax relief of £100,000 * 50%).
If capital gains were rolled into the EIS and SEIS, there could be further relief depending on the amounts of the gain invested into the schemes.
While the above looks good on paper, it is worth reiterating that SEIS and EIS investments are high-risk investments in early-stage companies. You could lose all your money. Tax reliefs depend on your individual circumstances and may change.
Potential tax benefits: £110,000 (income tax relief) + £120,000 (IHT reduction) = £230,000
Effective investment cost after tax relief: £190,000
TOTAL CAPITAL AT RISK (which may be lost entirely): £300,000
Risk mitigation through tax relief: Up to 76.6%
If you would like more on SEIS and EIS investments, View our current EIS investment opportunities
A £5 million estate would typically face a £1.74m-£1.87m inheritance tax bill depending on circumstances. For estates valued at above £2m, the residence nil-rate band reduces by £1 for every £2 above £2m. For an estate valued at £5m there would be no benefit from the residence nil-rate band.
As with the £2m estate worked example, BR qualifying investments, including those made through EIS and SEIS can be used to reduce the IHT liability.
Example situation: A family with an estate valued at £5 million facing a potential £1.74 million inheritance tax liability
£500,000 in EIS investments
£300,000 in SEIS investments
Assuming the SEIS and EIS investments are held for a minimum of three years at the time of passing these assets will fall outside of the estate and not incur inheritance tax. This would reduce the IHT liability from £1.74m to £1.42m - still a large bill, but reduced by £300k.
In addition, the initial investments may provide total income tax relief of £300,000 (EIS income tax relief = £500,000 * 30% and SEIS income tax relief of £300,000 * 50%).
If capital gains were rolled into the EIS and SEIS there could be further relief due depending on the amounts of the gain invested into the schemes.
As before, SEIS and EIS investments are high-risk investments in early-stage companies. You could lose all your money. Tax reliefs depend on your individual circumstances and may change.
Potential tax benefits: £300,000 (income tax relief) + £320,000 (IHT reduction) = £620,000
Effective investment cost after tax relief: £500,000
TOTAL CAPITAL AT RISK (which may be lost entirely): £800,000
Risk mitigation through tax relief: Up to 77.5%
If you would like more on SEIS and EIS investments: View our current EIS investment opportunities
Implementation considerations: The worked examples above assume annual investment capacity, ongoing EIS/SEIS availability, and stable tax legislation. Additional income tax relief is dependent on having income tax to pay.
Past performance is not a reliable indicator of future results. Startup investing carries significant risks, including the potential total loss of capital.
First, you should always speak to your adviser and ensure that the traditional inheritance tax planning methods are in place —maximising nil-rate bands, using annual gifting allowances, and ensuring wills are properly structured.
Once traditional methods are established, you can then assess how much additional inheritance tax relief you might want to manage.
Then, consider your risk appetite and suitability for investing in these illiquid assets. As Aled Phillips from Niche Private Clients states, "It's very important that people are aware that it could fail completely. And that's why I'm a firm believer that SEIS and EIS investing is not a one-off". Aled's insights on SEIS, EIS and VCTs can be listened to here.
Further, the importance of diversification should not be underestimated. Data from our own research, "The science of startup investing", suggests just how diversified a startup portfolio one may aim to build over time. One of the key findings was that an investor may need to build a portfolio, over time, of around 150 startup positions, to have a good chance of investing in a very high-returning business. As with more traditional inheritance tax planning, a successful startup portfolio will take time to build and develop.
Planning ahead may also increase the chances of benefiting from the income tax relief available through EIS and SEIS schemes and potentially realise gains from other assets that can be rolled into SEIS and/or EIS investments.
Your accountant can help coordinate income tax relief claims and ensure proper record-keeping for both traditional and startup investment strategies.
Your financial advisor can help integrate startup investments with your broader investment portfolio and financial planning objectives.
The main risks include high failure rates (70-90% of startups fail), illiquidity, potential loss of EIS/SEIS qualification, and potential legislative changes.
Before incorporating startup investments into your inheritance tax planning, it's important to understand both the real risks involved.
High failure rates are part of the model: The reality of startup investing is that many companies fail completely. Industry studies suggest that 70-90% of startups fail within the first few years.
The immediate income tax relief available through EIS (30%) and SEIS (50%) means your effective investment cost could be substantially lower than the invested amount. Additionally, if investments do fail, loss relief provisions allow you to claim a portion of these losses against your income tax or capital gains tax, providing further protection.
For example, a £100,000 EIS investment typically provides £30,000 immediate tax relief. If the investment fails completely, you can typically claim loss relief on the remaining £70,000, reducing your effective loss to between £30,000 and £40,000 after tax benefits. Tax reliefs are subject to status and change.
Illiquidity: Investments in startups cannot be sold easily. While the beneficiaries of the shares will receive them without paying IHT, they may still wait a long time before they are able to cash in on them. Please note, at the time of transfer to the beneficiaries, the shares are revalued. Should the shares be sold at a later date at a value higher than the value established at transfer, they will be subject to capital gains tax.
Before investing in startups, please take these liquidity-related items into consideration:
Ongoing living expenses and financial security
Other investment opportunities that may arise
Potential inheritance tax on assets not covered by BPR
Family financial needs and emergency situations
Research by Dr. Brian Moretta from Hardman & Co found that shifting a portfolio "from a 60/40 equity/bond split, and moving to 35% equities, 50% bonds, 15% venture capital may maintain a similar risk profile".
Brian further adds that "This diversification benefit can add 0.5-1% annual returns without increasing portfolio risk". For more of Brian's insights on SEIS and EIS investments, listen to his episode of angel insights.
However, not all SEIS and EIS Funds are created equally. Investing in the right startup opportunities plays a key role in achieving positive returns. Data from our white paper "A data–driven approach to venture fund portfolio building" suggests that nearly half of the growth in the startup market is driven by just 10% of the investments. Gaining access to that group of companies could be the difference between wealth creation and loss. This is why the Access EIS fund co-invests with Angel investors who have historically invested in some of the companies that outperformed the market.
A good plan, with a bit of creativity, can be key to managing inheritance tax. While traditional planning methods provide some relief, Business Relief, which may be accessed through EIS and SEIS schemes, could offer one of the most tax-efficient approaches available, and the potential for capital growth (though BPR qualifying investments are high risk, so you should be able to bear potential capital loss).
Overall inheritance tax reduction with investments in Business Relief qualifying assets, receiving up to 100% inheritance tax relief
Additional income tax benefits of 30-50% through EIS and SEIS schemes
Portfolio diversification may increase potential returns at a similar risk level, when balanced correctly.
Wealth creation potential should the startups achieve large multiple returns.
Accessing the right opportunities to increase the chance of successful exits
Portfolio approach for diversification
Long-term perspective taking illiquidity into consideration
Consulting a financial advisor for regulatory compliance and strategy optimisation
Calculate your inheritance tax exposure using professional tools or advice
Research professional investment platforms with strong track records in EIS/SEIS
Seek specialist advice on implementation strategies for your circumstances
Begin investment allocation to start the BPR qualification timing
The inheritance tax situation affecting British families often benefits from sophisticated solutions. For the right families, who can bear the potential for capital loss and illiquidity periods, we believe this approach could transform an inheritance tax liability into a wealth creation opportunity while supporting the next generation of innovative British companies.
Details about our EIS investment opportunities and SEIS investment opportunities can be found here, including current opportunities and our investment process.
You must hold qualifying startup investments for at least two years to benefit from Business Property Relief for inheritance tax purposes. EIS and SEIS income tax relief require holding for at least three years to avoid clawback. The inheritance tax relief continues as long as you hold the qualifying investments. You should expect to hold most S/EIS investments for at least 5-7 years, and maybe longer.
If a startup investment fails, you can claim loss relief against your income tax or capital gains tax on the amount invested after deducting any income tax relief already received. This significantly reduces your effective loss. For example, a failed £100,000 EIS investment might result in an effective loss of only £30,000-£40,000 after tax reliefs. Tax reliefs are subject to status and change.
Direct EIS and SEIS investments cannot be held in pensions or ISAs as they require personal investment for tax relief qualification. However, some AIM-listed shares that may qualify for Business Property Relief can be held in ISAs, providing a limited inheritance tax planning opportunity within the £20,000 annual ISA allowance.
Professional investment platforms conduct comprehensive due diligence to ensure investments qualify for EIS/SEIS and BPR. Companies must meet specific criteria, including being UK-based trading companies, having fewer than 25 employees (SEIS) or 250 employees (EIS) or 500 employees (EIS for knowledge intensive companies), and conducting qualifying business activities.
Startup investments are illiquid and cannot typically be sold before exit events after some time, such as trade sales or IPOs. This is why it's important to only invest money you won't need for living expenses or other purposes during the holding period.
To be eligible for BPR, an asset must satisfy specific criteria. These requirements encompass:
Active trading enterprise: The enterprise or asset must be engaged in active trading operations. Holdings in non-trading entities, including passive investment vehicles, are not eligible. This encompasses funds remaining in business accounts, which may unintentionally classify your enterprise as an investment vehicle without your awareness.
Minimum holding period: The asset must have been held for no less than two years prior to the transfer (whether through inheritance, gifting, or disposal).
Eligible asset categories
Trading company shares: Should you hold shares in an actively trading company, these may qualify for BPR, assuming the company remains operational, conducts genuine trading activities, and is not simply maintaining investments or liquid assets.
Commercial property: Real estate utilised within a business operation, such as commercial premises or land actively employed for trading activities, may also be eligible for BPR.
This article provides general information on inheritance tax planning through startup investments. Tax benefits depend on individual circumstances and current legislation. You should seek independent financial and tax advice before making investment decisions. EIS investments are high-risk investments in early-stage companies and you could lose all your money and capital is totally at risk.