Risks of alternative products/investments

Yes, people should take heed, and the part that gets missed is timing. Business Relief can cut the inheritance tax value of a qualifying business holding, in some cases to nothing, but isn't banked up front. The holding normally has to be owned for two years to qualify, and the relief only applies when the tax falls due. So the reported loss was already real while the saving was years away and depended on living long enough. The trade-off is relief later against money committed now. I can't offer a client story here. On interest rising, nobody counts buyers of Business Relief products, and published figures cover relief on estates at death. HMRC does count Self Assessment claimants in venture capital trusts, a different scheme, and they fell 8 per cent in 2024 to 2025, the second fall in a row, though the amount claimed edged up. A saving that lands years later, if the conditions hold, is a thin reason to commit money today.

The old cliché is valid: the tax tail should not wag the investment dog. VCTs, EIS and AIM based IHT investments offer valuable tax advantages, but investors are also accepting genuine additional risks - illiquidity, concentration and the possibility of significant loss. A headline tax break is cold comfort if the underlying performance is dire or fails entirely.

The real trap is behavioural. Tax feels like a certain, visible loss, while investment risk seems theoretical at the outset. A client worried about a 40% IHT bill may expose the whole sum to investment risk to avoid part of that liability. Frozen allowances, most unused pensions entering the IHT net from April 2027, and a less generous CGT regime only sharpen that anxiety.

Tax relief cannot turn an unsuitable investment into a good one. Consider ISAs, pensions, allowances and, where appropriate, gifting first. Higher risk schemes may have a role as a small allocation - definitely not the centrepiece.

The danger is letting the tax tail wag the investment dog. Saving inheritance tax is not a win if you take £400,000 of capital and expose it to risks you would never otherwise accept.

IHT-focused investments can have a place, but they are not magic tax wrappers. They can involve smaller companies, lower liquidity, higher volatility and the very real possibility of capital loss. The first question should always be: “Would I still be comfortable owning this if there were no tax advantage?”

We are seeing more people panic about IHT and CGT, and panic is exactly when poor financial decisions get made. Tax planning should improve the overall outcome, not simply reduce one line on an estate calculation.

Sometimes paying some tax is financially better than taking disproportionate risk trying to avoid it. A tax bill is painful. A permanent capital loss can be worse.

When it comes to IHT, HMRC is like an extra child they never knew they had. Without effective IHT planning it will get 40% of everything above available allowances. Leaving 60% to the rest of the family.

Planning matters more after the April 2027 changes, but the tax tail must never wag the investment dog.

Avoiding tax should never mean ignoring investment risk. Some IHT-efficient products invest in smaller or unquoted businesses and need a long-term view. Understand where the money goes, what can go wrong, liquidity, and whether the tax saving justifies the risk is hugely important. Advice from a Chartered Financial Adviser weighs all of this together.

I have seen this before, especially with EIS and SEIS investments that follow a J-profile. Early paper losses are common as capital is deployed before value builds. Clients focused only on tax relief can be shocked by dips in the first 18-24 months. The tax benefit only works if the risk and time horizon truly suit the investor.