Tag Archives: inheritance

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 →