Consider a client you might recognise: £100,000 available to invest, with a further £1.5 million expected upon completing the sale of a property. She planned to wait until that sale went through before setting up a Family Trading Company (FTC) with the combined proceeds.
On the face of it, it is an entirely reasonable way to think about the decision, and many clients would approach it similarly. But it overlooks something that matters greatly in Business Relief planning: timing.
What the client could have done instead
Rather than waiting for the property sale, she could have established the FTC straight away, investing her £100,000 immediately using partially paid-up shares. The remaining balance, drawn from the eventual sale proceeds, would then be introduced later as a further payment on those same shares.
The difference between these two approaches is less about the mechanics of how she funds her plan and more about how much value could have been covered, and thus outside of the estate, investing the £100,000 as of day one even without the house sale completion.
Why partially paid-up shares matter
When a Family Trading Company issues partially paid-up shares, the investor owns the entire shareholding from day one, even though only part of the capital has been paid in at that point.
The later payment, when it comes, is not the purchase of new shares but the settlement of an existing obligation, sometimes described as a call, on shares already owned. No new asset is being acquired.
This distinction matters because HMRC treats the qualifying period for Business Relief as running from the date the shares were originally subscribed for, rather than from the date each instalment is paid. Provided the shares were issued and structured correctly from the outset, the full eventual value of the holding qualifies from that first investment date.
A conventional capital injection into a trading company works quite differently. Had the client waited and then invested a lump sum once the property sold, that fresh capital would ordinarily begin its own two-year qualifying period from the date of investment. The partially paid-up structure avoids this, since the clock does not reset when the balance is paid. It simply continues running from where it started.
What waiting actually cost her
By choosing to wait, the client lost the qualifying time she would otherwise have banked between her initial £100,000 investment and the eventual sale of the property. Had they invested at the outset, that period would already have been contributing towards the two-year requirement by the time the sale was completed and the balance was introduced.
Instead, the second clock didn’t start running until investment of the sale proceeds, and every month between the point she could have invested and the point she actually did was a month of qualifying time that cannot be recovered.
This isn’t to denigrate the decision unduly. It is better understood as an opportunity that existed and was not taken.
A further reason not to wait
From April 2027, pension funds and death benefits will form part of a client’s estate for Inheritance Tax purposes. Clients who have long assumed their pension sits outside their estate will need to revisit that assumption, and many will be doing so for the first time. It is another reason conversations about estate planning, including Business Relief, are better started sooner rather than later.
The adviser opportunity
The real value in this scenario was never about persuading the client to sell her property faster. That was always going to be her decision to make, on her own timeline.
Instead, the value lay in the earlier conversation. An adviser who understands the partially paid-up structure can identify these situations before a client has settled on a plan, and can show them an option that preserves qualifying time without requiring them to change their broader financial decisions.
Once a client has already decided to wait, the full scale of the estate planning opportunity is gone. The advisers who create the best outcomes for their clients are the ones who raise these conversations before the waiting starts, not after.
Speak to us about how early FTC planning could benefit your clients.
Important Information
Stellar Asset Management Limited does not offer investment or tax advice or make recommendations regarding investments. Prospective investors should ensure that they read the brochure and fully understand the risk factors before making any investment decision. The value of investments and the income from them may fall as well as rise and is not guaranteed. No assurance or guarantee is given that any targeted returns will be achieved. Forecasts of potential future results are not a reliable indicator of actual future results.
Stellar Asset Management Limited of 20 Chapel Street, Liverpool, L3 9AG is authorised and regulated by the Financial Conduct Authority.
