Hold and review: An approach for investments and tax

Warren Buffett, the Chairman of the Board of Berkshire Hathaway, famously said "our favourite holding period is forever".¹

He did not intend that he should be taken literally, but rather he was emphasising the philosophy of buying carefully and for the long term. Circumstances may change and regular review is crucial, but the aim is to accrue value over time.

This is an investment approach close to our own hearts. We do not chase themes, speculate on short-term market movements, or attempt to time cycles. Instead, we invest in companies with sustainable business models and first-class management teams. Ours is a long-term view that prioritises wealth preservation.

We are also not tax advisers, although our Head of Private Client Wealth Solutions, David Kilshaw, works with clients and their tax advisers to help achieve the optimal structuring of assets. It is therefore not for us to comment in detail on the world of personal taxation.

However, as we explore in this article, the tax landscape is changing radically - a leading firm of lawyers described the changes as representing one of the 'most significant shifts in decades'.²

One might suggest that during times of change, it is as important in the tax world as in the investment world to focus on the longer term and not be over-influenced by developments that often prove short-lived.

In the following paragraphs, we outline the new tax rules and recommend that a considered, long-term plan remains the most appropriate response in the current environment. Dialogue with tax advisers remains critical to that process.

How taxes are changing

The main changes are occurring in inheritance tax and estate planning. From 6 April 2026, many assets that were formerly exempt from IHT come within the charge to IHT.

Business property relief, which applies to shares in many unquoted trading companies, and agricultural property relief, which applies to many farms and agricultural land, are halved from that date, subject to every taxpayer having a tax-free allowance of £2.5m.

From 6 April 2027, pensions also fall within the ambit of IHT.

These changes relate to assets that form a large part of many taxpayers' estates; assets that in many cases they will have intended, at some stage, to pass tax free to their children. They follow the re-casting of the non-dom and IHT rules in 2025, whereby residence became the key criterion for determining a liability to UK tax.

A stable approach

The changes may prompt some taxpayers to abandon long-term planning or to doubt the validity of their succession plans. Such thinking would, in our opinion, be wrong. At a time of fundamental change, review is appropriate, but that review should be conducted in line with long-established family values and principles.

Many families now enshrine such an approach in a family constitution or other governance document. The family meet, sometimes with external professional support, to discuss and develop their values and principles. Issues commonly addressed include: what is their wealth for, what level of provision will be made for family members and when should prenups be part of the family's planning.

The results of these discussions can be included in a family constitution — a written document which, although not legally binding, can help the family with decisions and provide a long-term philosophy to help with matters like tax changes.

For example, if the constitution provided that wealth should be passed to children, but in a way that enabled parents to retain supervision and control, then the family can, in conjunction with their tax advisers, review the tax changes to find a way of addressing them while still remaining true to their fundamental principles.

Wills and trusts

Even if a family do not have a constitution, they can, helped by their advisers, have a set of principles to guide their long-term succession and estate planning.

A will should be the bedrock of such an approach. Wills are the perfect vehicle to support long-term planning and arguably the most important document anyone ever signs.

Wills provide certainty and assurance to families in the most difficult of times, and they should be reviewed regularly — not just when tax changes occur. Where an estate will hold shares in a family company, an existing will should certainly be reviewed now. It may, for example, be better under the new regime to pass the shares to a surviving spouse (perhaps under a trust) in order to facilitate tax-efficient gifts to children.

The use of family trusts can be another bedrock of long-term succession planning. The tax treatment of trusts is subject to perpetual change, and it is increasingly difficult to create trusts without an upfront tax charge. Despite this, trusts remain flexible vehicles that enable assets to be transferred to the next generation.

Trusts for holding family company shares may no longer be as tax efficient from 6 April 2026, and funds will be required to pay the IHT bills that will arise on each 10th anniversary of the creation of the trust.

However, careful consideration should be given before the trusts are broken, on the grounds that the initial tax advantages have changed. Trusts are, as stated above, the ideal vehicle for long-term planning and while tax rules change, trust law tends to remain relatively constant.

In recent years, family investment companies (FICs) have also become popular, and a lot of our clients hold part of their Rothschild & Co portfolios in an FIC. The advantage and rationale for an FIC are considered in our separate note on this topic (link); another example of the advantages of long-term thinking. FICs work well where they are used as a long-term holding vehicle, with value passing over time to family members. They do not work well as 'piggy banks' where money is extracted (with consequential tax charges) on a regular basis.

Life assurance

Long-term planning does not preclude being open to and acting on new ideas. In the private client tax world, an example of this is life assurance. Although life assurance itself is not new, it has become much more established as an IHT and succession planning tool in recent times. For example, taxpayers are considering life assurance to provide funds for IHT bills on assets like family companies and pensions — which were not formerly subject to IHT.

Life assurance is not 'forever' planning (we all pass on), but it does fit well as part of a considered and thought-through approach to estate planning.

Looking to the long term

We opened with a quotation from Warren Buffett and we close with another:

"More investment sins are probably committed by otherwise quite intelligent people because of 'tax considerations' than from any other cause."³

This emphasises the need for individuals to take a considered and long-term approach both to their investment decisions and their tax decisions. Don't give yourself the opportunity to repent at leisure.

Citations

[1] Chairman's Letter, Berkshire Hathaway, 1988
[2] Planning for the worst revisited: how common estate and succession planning strategies are changing
[3] Second Annual Letter to Limited Partners, 1957

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