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Using AIM For IHT Purposes
AIM shares can be used to mitigate the death tax under business property relief rules. . By Nyree Stewart | Published Sep 30, 2013 Investing in AIM shares hit the headlines earlier this year when they became permitted investments within Isas, but perhaps less well known is the fact they can also be used for inheritance tax-planning purposes. Under the umbrella of business property relief (BPR) holding shares in an unquoted company can qualify for 100 per cent tax relief, providing they are owned for at least two years. For these purposes, companies listed on AIM are considered unquoted, even though they are technically listed on a stock exchange. However, as with most UK tax regulations, it is not that straightforward. Jonathan Gain, chief executive of Stellar Asset Management, explains: “Not all companies on AIM will qualify. There are a number of foreign-owned resources and mining companies which are managed and controlled in far flung places that are not necessarily EU managed or domiciled, so those types of companies won’t qualify.” That said, he points out this still leaves the investor looking to mitigate their IHT liability with more than 1,000 companies to choose from that have a UK presence or UK activity, which means they qualify for BPR. Marilyn McKeever, associate director in the private client practice at Berwin Leighton Paisner, adds: “Shares in unquoted trading companies are, broadly, exempt from inheritance tax. An individual can give such shares to a trust without the 20 per cent entry charge and for as long as the trustees hold the shares, the trust will escape the periodic and ‘exit’ charges.” But Paul Thompson, tax and estate planning consultant at Canada Life, adds that they can be quite volatile and so won’t suit every investor’s risk profile. Mr Gain agrees that the size of most of the companies on AIM are clearly not as substantial as say the FTSE 100-listed firms, but there are still some surprisingly large and well-known names such as Asos, Majestic Wine and Mulberry. “These are decent sized companies and are therefore set up to be managed well in good times and bad times and are much less volatile than much smaller companies.” On the issue of whether AIM investments are more volatile, he points out that people looking to use AIM for IHT mitigation understand that it will be a more volatile investment. But that can be managed by having the portfolio discretionally managed and can therefore mitigate the volatility by having a broad spread of holdings.” Other key points for using AIM shares as an IHT tool is to know which are the good companies and meet the management on a regular basis to understand what their plans are and to make a more informed buy or sell decision. Investing in AIM shares for IHT purposes is an alternative way to both mitigate IHT and provide some extra returns. But with all investments, the key is due diligence and understanding the risks involved in investing in a much smaller market. Nyree Stewart is deputy features editor at Investment Adviser Continue reading
When Should You Use BPR To Plan For IHT?
By Tony Mudd on Monday, 7 October 2013 Business property relief isn’t the right tool for everyone planning their inheritance but it’s well worth a look to see whether you might benefit from it. It has occurred to me that anyone who read my previous article Beware Government Bearing Gifts may have been left with the view that investing in businesses that qualify for Business Property Relief (BPR) brings with it such inherent liquidity and investment risks as to make it an area to be avoided. To use an old and often quoted adage that it would be akin to letting the tax tail wag the investment dog. If this was indeed the case then it would only be appropriate to outline the counter arguments; specifically the value BPR qualifying investments outside of an Individual Savings Account (ISA) wrapper can have. It is the case that Alternative Investment Market (AIM) shares qualifying for BPR offer a narrower range of investment options than the wider BPR investments available outside of an ISA wrapper and by definition lower diversification and higher investment risk. However I am going to look here at the tax benefits and the type of investors or situations where this type of investment may be of particular relevance to make my point. To remind readers, investments qualifying for BPR provide the simple but straightforward benefit of being exempt from Inheritance Tax (IHT) once they have been held for two years provided they remain in the hands of the investor at the point they become chargeable ie lifetime gift into trust or on death. Elderly investors or those in poor health Many IHT solutions either require investors to survive a period of seven years or rely on them being able to arrange life assurance. For elderly investors or clients in poor health the fact that the planning involving BPR is effective within two years and/or does not require medicals can be of significant value. Attorneys and deputies Where an investor loses mental capacity their financial affairs will either be dealt with by an attorney or deputy. In these circumstances due to the limitations imposed in relation to lifetime gifts (with the possible exception of Continuing Powers of Attorney in Scotland), the ability for the attorney to invest in the individual’s own hands in a BPR qualifying investment may be the only inheritance tax planning option available. Existing trusts Where the existence of trust assets will trigger a liability to IHT the selection of BPR assets as a trust investment can provide significant tax planning benefits. A liability to IHT could arise in respect of Interest in Possession Trusts or Immediate Post Death Interest Trusts on the death of a beneficiary or in respect of Discretionary Trusts for periodic (10 yearly) charges. Business owners Many investors who also run their own business will be well aware that the business itself offers the perfect shelter from IHT. The reason for this is that the business, assuming it is a trading entity, will qualify for BPR. However if and when the business is ultimately sold the protection from IHT will be lost. Through the use of BPR investments not only does this not need to be the case but the normal two year qualification will also not apply. BPR investments can also be used by husband and wife or those in civil partnerships where only one party needs to survive the two years that the investment is held and in combination with appropriately drafted wills whereby in some circumstances the tax advantages can be doubled. As with AIM shares qualifying for BPR in ISAs BPR investments outside of an ISA wrapper is not a panacea but for some clients in the right circumstances, well worth a look. Continue reading
Africa: There’s Hope for African Farmers
By Alex O Awiti, 15 October 2013 Africa accounts for 60 per cent of the world’s arable, uncultivated land, according to a report published by McKinsey Global Institute in 2010. The FAO has shown that cereal yields in Africa are currently less than 50 per cent of those in Asia or South America. Such low productivity is largely attributable to the current state of smallholder farming. It is estimated that about 75 per cent of all farmland in Africa is less than 4.94 acres in size. Nearly 70 per cent of the African population lives in rural areas where they depend exclusively on agriculture as farmers or labourers for their livelihoods. A large percentage of these are women. A World Bank report published in 2011 estimated that the global food price spikes in 2008 pushed 44 million people below the poverty line, most of them in developing countries. According to Oxfam International, poor people in developing countries spend 50-80 per cent of their income on food. More than 90 per cent of Africans who live on less than $1.25 (Sh105) a day also happen to own and live on small farms. As the green revolution in Asia showed, the potential of smallholder development can be realised. But conditions have changed. Now smallholders face higher transaction costs and have to cope with the fact that agricultural research is biased towards large-scale production. This raises newchallenges in small farm development. On the other hand, higher prices of staple foods present opportunities for farmers. India and China have similar proportions of small farms as Africa, but have achieved significantly higher productivity. Despite the success of smallholder farmers in Asia, who fuelled the green revolution, there is skepticism that East Africa’s smallholders can replicate this model and deliver agricultural transformation and improve livelihoods among rural smallholder farmer. It is argued that for agricultural growth to gain traction, Africa’s agricultural and labour productivity will have to increase massively, requiring vast proportions of smallholder farmers to move out of the farm. High productivity of modern agriculture is associated with high technology, intense capital input and market linkages, and hence higher capacity to compete aggressively in factor markets, including land, labour and capital. However, these factors are not appropriate for the smallholder farm model. While there is a strong poverty-based case for trying to assist smallholder farmers, the agenda for African agricultural growth should be to introduce commercial agriculture on a competitive basis. Why is it that with all our research, technology and innovation, managerial capability and investment capacity, we are unable to make even a modest contribution to the pervasive problem of poverty, hunger and malnutrition in the smallholder farm families in sub Saharan Africa? We must learn from past successes and failures. Doing more of the same by refurbishing the solutions of the past – development aid, NGOs, training and visit, farmer field schools, international agricultural research organisations – is vital and has a critical role to play, but has not addressed the problem of low productivity, hunger and poverty. Paul Collier has argued that having the single most important sector of Africa’s economies almost exclusively managed by reluctant micro-entrepreneurs – smallholder farmers – is a recipefor continued divergence from global agricultural productivity. But in the logic of the timeless wisdom of CK Prahalad, we must stop thinking of smallholder farmers as victims or a burden and start recognising them as resilient and creative entrepreneurs and valueconscious consumers. What would be the defining characteristics of agriculture over the next half century if Africa were to converge on the performance of Asia and Latin America? I argue for a focus on small and medium-sized enterprises agribusiness. But harnessing Africa’s agricultural potential requires talented managers and entrepreneurs that can attract capital, apply technical expertise to develop profitable SME agribusinesses. Moreover, serving SME agribusiness will demand innovations in technology, services and business models. Africa’s large youth population provides a ready pool from which to develop talented entrepreneurs and managers who will drive the growth of agriculture. Those of us in the research, education, policy, development and business community can make this a reality by using our resources to build the capabilities of the African SME agribusiness sector to generate economic growth and achieve food and nutritional security. The writer is the director of East African Institute and associate professor at Aga Khan University. Continue reading
