How inheritance tax changes sparked a boom in private funds

The UK private business relief scheme sector has emerged as one of Britain's fastest-growing investment markets, with assets under management now exceeding £10 billion and effectively capturing market share from the Alternative Investment Market (AIM). The sector's expansion has accelerated dramatically over the past four years, driven substantially by inheritance tax policy changes introduced in Rachel Reeves's recent budgets that came into force in April 2026. These regulatory shifts have fundamentally rebalanced tax incentives in favor of unquoted private schemes over listed equity vehicles, according to *The Times*.

The appeal of private business relief schemes centers on their inheritance tax efficiency. Under the new rules, individual investors receive full relief on unquoted assets up to £2.5 million (or £5 million for married couples), providing a compelling alternative to traditional equity investment and trust structures. This tax advantage has resonated particularly with high-net-worth individuals and family offices seeking to optimize wealth transfer strategies. The schemes cover diverse infrastructure and renewable energy assets, including enterprises such as Fern Trading, Averon Park, Elm Trading, Bagnall Energy, and TP Leasing.

Octopus Investments manages the sector's flagship vehicle, Fern Trading, valued at £3.4 billion, which has positioned itself as a provider of socially beneficial infrastructure. The fund claims to generate 3.2% of the UK's solar energy output and 1.5% of onshore wind capacity, framing business relief schemes as mechanisms for directing long-term capital toward government industrial priorities and infrastructure strengthening. This narrative has helped legitimize the sector among institutional stakeholders and policymakers.

However, regulatory and professional concerns have emerged. City firms, led by Whitman Asset Management, have escalated warnings to HM Treasury and HMRC regarding two principal risks: the government may have underestimated the policy consequences of its inheritance tax changes, and there exists potential exposure to mis-selling allegations should the rules undergo sudden revision. Tax expert Philip Hare has publicly noted that "the government may not have foreseen the consequences of these changes," highlighting the unintended structural shift from AIM-listed securities to private relief schemes. Thousands of elderly investors could face financial exposure if regulatory circumstances change, creating both reputational and legal risks for scheme managers and intermediaries.