For several centuries, English law contained a rule with a wonderfully specific name: the “year and a day” rule. If a person was injured and later died, it was only murder if they died within a year and a day of the injury. Survive to day 367, and the law decided that whatever had killed you, it couldn’t have been the original blow. The clock had run out.
It sounds arbitrary, (it was) but it tells you something about the law, and about tax in particular: they are full of clocks. Arbitrary lines drawn in time, on one side of which everything is different from the other. Miss the deadline by a day, and the outcome changes completely.
Inheritance tax has several of these clocks, and most people know the famous one. Give something away, survive seven years, and it falls out of your estate. Die in year six, and it’s dragged back in. The seven-year rule is the deathbed clock most have heard of.
Far fewer people know about a much faster clock sitting alongside it. It’s called Business Relief, and its clock runs for just two years.
Business Relief does something that sounds too good to be true. Certain assets, broadly shares in qualifying trading businesses and some holdings that aren’t listed on the main stock market, can pass free of inheritance tax, or at a reduced rate, provided you’ve owned them for at least two years at the point you die.
Two years. Not seven. And, crucially, you don’t have to give anything away to get it. Unlike a gift, where the entire point is that you no longer own the thing, Business Relief lets you keep the asset, keep control of it, keep any income it produces, and still have it treated favourably for inheritance tax, once the two-year clock has run.
You can see why it’s been such a popular tool, particularly for older clients who want to reduce an eventual IHT bill but are, understandably, not keen to hand their money to their children a decade early and hope for the best.
There is a couple of catches. The two years have to be completed. Firstly buy qualifying assets a fortnight before you die and you get nothing. It rewards planning done in reasonable health and reasonable time, which is a polite way of saying: not on a deathbed. Like most of the best things in tax, it’s available to the organised and closed to the desperate.
The second catch is that you have to keep hold of the assets until you die, if you sell them or turn them into something else the relief goes. You can gift them away but the recipient has to keep them until you die as well.
This second catch is the reason why it is generally not wise to invest in these products until you are very old. Historically these assets have produced lower returns than standard stockmarket investments. So much so, that if you invest in them in your early 70s and live to your late 80s, you would almost certainly have had more money for your heirs by remaining invested in standard investments and them paying the tax.
There’s a newer (third) catch, too, because the rules changed in April 2026.
Business Relief used to be close to unlimited: qualifying assets could pass with 100% relief, however large the holding. That era is over. From 6 April 2026, the 100% relief is capped. It now applies to the first £2.5m of combined qualifying business and agricultural assets. Above that ceiling, relief drops to 50%, which leaves an effective inheritance tax rate of 20% on the excess. The allowance can be passed between spouses, so a married couple can shelter up to £5m between them, which, you’ll notice, brings us neatly back to the value of a certain marriage certificate.
Shares in AIM-listed companies, long a favourite Business Relief route, took a harder knock. From the same date they qualify for only 50% relief, and they don’t get the £2.5m allowance at all.
So Business Relief remains one of the genuinely useful clocks in the tax system: fast, at two years, and unusually generous in letting you keep control of your own money. But it’s less generous than it was, more capped than it was, and, as ever, it comes wrapped around investments that are their own kind of risky. Qualifying assets tend to be smaller, less liquid companies, precisely the sort whose value can fall as readily as rise. The tax tail should never be allowed to wag the investment dog.
It’s a tool, in other words, not a trick. Whether it fits at all depends entirely on the person, the assets, the timing and the appetite for risk, which is exactly the sort of thing worth taking proper advice on, well before any clock starts ticking.
The year-and-a-day rule was finally abolished in 1996. The two-year rule is very much still running. The difference, as ever, is knowing it’s there in time to use it.
We help people in Hook and across Hampshire, Surrey, Berkshire, Sussex and Kent understand which of the tax system’s many clocks apply to them, and start them early enough to matter.
Altor Wealth Management LLP is authorised and regulated by the Financial Conduct Authority (FCA number 769033). Registered office: Landmark House, Station Road, Hook, Hampshire RG27 9HA. This article is general information, not personal advice or a recommendation of any investment. Business Relief investments carry significant risk, including to your capital, and the value of investments can fall as well as rise. Tax treatment depends on individual circumstances and is based on current legislation, which can change.