In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk.
Question: I’m looking to lower the inheritance tax (IHT) bills that my family members face when I pass away and pass my property and savings on to them. I have heard about schemes like the Enterprise Investment Scheme (EIS), which could lower my IHT bill, but I know the investments are relatively risky. Are there any investments that are also free of IHT but aren’t as risky?
Answer: It’s a very sensible instinct to question the Enterprise Investment Scheme (EIS) as it won’t be right for everyone.
The EIS is designed to encourage investment in small, early-stage UK companies. In return for backing businesses that may be unproven, you receive generous tax incentives, including income tax relief and, after two years, the potential for the investment to be taxed at 0 per cent instead of 40 per cent IHT.
A lot of what sits behind this comes down to one rule: Business relief. This allows certain investments to be taxed at 0 per cent after just two years of holding the asset (assuming it is still held at date of death), which is what makes them so appealing for IHT planning.
That doesn’t just apply to EIS. It also includes shares in qualifying trading businesses. For a long time, AIM (Alternative Investment Market) portfolios have been a popular middle ground. You are investing in smaller, growing companies, but through quoted shares, which can feel more familiar and accessible than backing individual start-ups.
The rules have changed somewhat since April 2026. AIM shares now generally benefit from 50 per cent relief from IHT, rather than being fully exempt, meaning you pay tax at 20 per cent rather than 40 per cent. That does reduce the headline tax advantage, but it is still a meaningful saving, effectively halving the IHT bill on that portion of your estate after the two-year qualifying period.
Unquoted trading company shares, including those used within EIS, can still qualify for full relief in many cases, provided they meet the rules and are held for long enough. But as you’ve already recognised, that tends to come with higher investment risk, reflecting the earlier stage and often more concentrated nature of those businesses.
So the picture today is really about balance. AIM offers exposure to smaller companies and still provides valuable IHT relief, but with the familiarity of listed investments and the ability to diversify across a portfolio.
There isn’t an option that gives you strong IHT relief with no investment risk at all. The tax benefit is there because of the type of assets you are invested in. But AIM and other business relief investments can offer a more measured way of approaching this than going straight into early-stage companies.
For many people, the answer is not to rely on one route alone. You might use business relief investments, including AIM, for part of your wealth where you are comfortable with the ups and downs, and take a steadier, more gradual approach with the rest.
If EIS feels like a step too far, that is perfectly reasonable. There are ways to approach IHT planning that still make use of the rules, but in a way that feels more aligned with your attitude to risk.