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Leasing and Lending investments in IHT planning

7 July 2020

Triple Point’s Jack Rose explores IHT options, and how business relief in the form of leasing and lending can benefit clients and the UK economy.

Succession planning is a complex affair at the best of times. There are a myriad of challenges to consider that require a range of solutions to achieve the desired outcome for the client. Perhaps given the uncertainty we all face in today’s climate, flexibility is the most critical of all considerations.

One of the most flexible options for those looking as IHT and succession planning is the use of business relief. With a 40-year history, business relief has been a fundamental part of intergenerational planning for businesses since the 1970s. Originally designed to allow family businesses to be passed across generations without being subject to inheritance tax, the rules have been expanded to allow other investors to invest in businesses that qualify for business relief, providing much needed capital and support for businesses whilst also benefiting from the inheritance tax relief.

Whilst there is a wide variety of options across sectors and asset classes, many are unaware that some of the key investment opportunities that qualify for business relief today are via companies that provide funding in the form of lending and leasing. These companies can, in some instances, provide funding to a huge range of organisations from the NHS to smaller firms across the UK.

This is often termed direct lending and is an asset class that has historically only been open to banks and large financial institutions. However, over the last two decades it has increasingly become open to a wider group of investors. Advice firms that choose this option can help their clients mitigate their IHT liability, diversify their investment portfolio, and support two areas of the economy that would particularly benefit from further support – SMEs and the public sector.

Other considerations include trusts, which are often a well-trodden path when it comes to succession and IHT planning. However, they can be complex to set up, and require specialist advice, leading to potentially higher costs. There is also the question of time: trusts can often take seven years until they are fully exempt from IHT, rather than two which is the case for business relief. Trusts, like everything else, are not immune from the potential of future rule changes, something that should be considered, especially in context of the need for the UK government to balance its books with the prospect of facing what will be the largest deficit in our history as a result of Covid-19. With one eye on the future it would perhaps be prudent to try and retain as much flexibility in the planning as possible – something that business relief offers.

Reduce IHT, support SMEs and the public sector through leasing and lending strategies

There are several ways for advice firms to include leasing and lending investments in their portfolios.

Triple Point’s Estate Planning Service, as an example, consists of two strategies – one which serves public sector entities, and the other which serves private entities. Through single strategy or a blend of both, investors can achieve 100% relief from IHT on the amount invested after two years through business relief.

Private investors can now access leasing and lending both to SMEs and public sector bodies, formerly the preserve of large financial institutions and banks.

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