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Did you know that business asset owners can get 100 per cent relief on non-business assets?

Financial advisers are well aware that the relief from inheritance tax on business assets is at 100 per cent and they appreciate that this relief can extend to investments in forestry, agricultural land and AIM-listed shares. But what is not so widely known is that, with proper planning, IHT on clients' non-business assets can be reduced or even eliminated altogether.

Take Mr and Mrs Roberts - they jointly own AIM shares and an interest in a family business which adds up to £800,000-worth of IHT relief. They also have a home, Ivy House and other assets totalling £1m.

Mr Roberts dies first. They made simple wills leaving everything to each other. There is no IHT to pay because gifts between spouses are free of tax. Mrs Roberts also inherits Mr Roberts' transferable tax-free band.

Mrs Roberts dies two years later. Her property passes to their children. Her AIM portfolio and business investment qualify for 100 per cent relief from IHT, but the children have to pay £150,000 on the home - 40 per cent of the excess over the combined total of the Roberts' tax-free bands.

This may seem a reasonable outcome but the young Roberts do not consider it at all satisfactory for they have been advised that, had two steps been taken, the tax bill could have been avoided altogether.

One step is for Mr Roberts to make a will leaving his share of the AIM-listed shares and business to a suitable flexible trust for the potential benefit of Mrs Roberts and the children. This will not give rise to IHT on his death because these are business assets which qualify for 100 per cent relief.

The other step is for Mr Roberts' executors to take an IOU from Mrs Roberts in place of her husband's business assets. She need have no qualms about this IOU because she can be a trustee of the flexible trust which holds it. The IOU is then set against Ivy House and Mrs Roberts owns the business assets.

The result is that no IHT is payable when Mrs Roberts dies. This is because, after allowing for the IOU against Ivy House, Mrs Roberts' net worth is below the combined total of the Roberts' tax-free bands. In effect, the IHT relief on Mr Roberts' business assets has been recycled and used again on Mrs Roberts' death.

What if Mrs Roberts had not survived by two years? Business assets have to be owned for more than two years before they qualify for IHT relief, although sometimes there is a way around this for agricultural land owners. But, if there is no way around, Mrs Roberts should be advised to take out term life cover.

Sometimes business and other assets are not so conveniently split as the Roberts' and equalisation between spouses is not practical. In that case, life assurance can also play a role.

A trap for the unwary if Mr and Mrs Roberts have borrowed money: a loan charged on business assets wipes out business relief to the extent of the money borrowed. Even an unsecured loan does partial damage. Borrowings should be reviewed to ensure they are charged specifically on non-business assets.

Farmers with valuable farmhouses can find this technique for getting 100 per cent relief on non-business assets a particular boon. This is because the value of the farmhouse is often out of all proportion to the value of the surrounding farmland. Unfortunately, HMRC have become increasingly difficult about granting relief on the home in such cases.

Take Mr and Mrs Farmer - they have agricultural land worth £800,000 and a farmhouse worth £1m. According to HMRC their home does not qualify for IHT agricultural relief.

Like the Roberts, the Farmers can defeat HMRC and escape IHT altogether if they make suitable flexible wills. If their farming arrangements are properly structured, Mrs Farmer will not need to survive Mr Farmer by two years. But, if the Farmers have borrowed money, their financial adviser needs to check that the borrowings are charged on the house not the land.

The moral is that owners of business and agricultural assets would be well advised to review their wills to ensure that 100 per cent tax relief can be turned into 200 per cent relief. Financial advisers can also do themselves and their clients a favour by advising clients that, with proper planning, they can achieve a 200 per cent IHT saving.

A word of warning, however: sophisticated technical provisions are required to pave the way for this strategy, and very few simple conventional wills contain these.

Richard Kirby is partner and head of the private client department of law firm Speechly Bircham