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In a survey of over 700 advisers we commissioned earlier this year, 61% had clients who had delayed financial decisions. In some cases, this involved delays to estate planning.
It’s critical that clients move forward with estate planning to prevent their loved ones from losing out. But many clients have grown increasingly worried and uncertain of the future.
More than a year on from the start of the coronavirus restrictions, some clients will have heightened concerns about how much of their wealth they need to access in later life, and how long they will live.
Business Property Relief (BPR) can offer a way to overcome these concerns, provided the client is comfortable with the additional risks, which we detail later in this article. A BPR-qualifying investment can be left free from inheritance tax when it is held for two years and at the time of death. And because it’s an investment, a client can keep access to their capital.
In this article, Jessica Franks, Head of Tax, Octopus Investments, looks at some common scenarios where BPR could help.
Clients who want to do estate planning while keeping their capital in their own name
The pandemic could well have made some clients uncertain about how much of their wealth they will need in later life. Whether that’s concern about care fees or estimating their level of day-to-day spending. Clients often want as much security as possible, even when they can comfortably afford to make gifts from their estate.
With BPR, if a client’s circumstances change and they need to access it, they can request to make a withdrawal, subject to liquidity being available. By contrast, once a gift is made it is permanently out of reach.
Clients looking for a faster IHT option
Clients often think about estate planning later in life and while many like the concept of gifting, the pandemic has led some to worry more about mortality and whether the seven-year taper is simply too long to wait.
Business Property Relief (BPR), in contrast, offers relief from inheritance tax within just two years, provided certain conditions are met.
If a client owns their own business (or a stake in one) and its activities meet the qualifying criteria for BPR, that means they should be able to pass on their shares in the business free from inheritance tax when they die.
If they sell some or all of their business, the proceeds would be subject to inheritance tax when they die. But if they use some or all of the proceeds to buy shares in another BPR-qualifying business within three years, those shares should be immediately zero-rated for inheritance tax.
Clients with a Power of Attorney in place
BPR-qualifying investments may be a suitable estate planning strategy where gifting or trust transfers are restricted or prohibited under Court of Protection rules because it is an investment that remains in the donor’s name. And unlike strategies that rely on life assurance, there is no underwriting and no medical forms to complete.
Withdrawals can be requested at any time, for example if the donor needs additional funds for care home fees. However, withdrawals are facilitated by the sale of shares and so cannot be guaranteed.
Clients with large ISA portfolios
An ISA offers valuable tax benefits during a client’s lifetime, but is still subject to inheritance tax along with the rest of their estate.
However, a client can transfer some or all their ISA investments into an ISA of BPR-qualifying shares. By doing so, they retain their ISA tax benefits, while also planning for inheritance tax.
It’s worth remembering that a BPR-qualifying ISA is likely to be higher risk than a mainstream stocks and shares ISA.
BPR-qualifying investments put a client’s capital at risk. The value of these investments, and any income from them, can fall as well as rise. Clients may not get back the full amount they invest.
Clients should also be made aware that tax treatment depends on individual circumstances and tax rules could change in future. In addition, tax relief depends on the companies they invest in maintaining their BPR-qualifying status.
The shares of unquoted and AIM-listed companies can be more volatile than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
Learn more at The Estate Planning Show
For more planning ideas, tune into The Estate Planning Show, a two-part online event on the 18th and 19th May and 15th and 16th June.
BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. We do not offer investment or tax advice. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. Issued: May 2021. CAM0100169.