Using BPR could push up probate costs and IHT liabilities
10 March 2019
Investors holding Business Property Relief-qualifying investments need to be aware of how they may affect their inheritance tax liability and probate fees, following plans to introduce a tiered probate fees system, warns Way Investment Services.
From April, probate feeds will be paid on a sliding scale depending on how much the estate is worth rather than administered as a flat fee.
According to Way Investment Services, BPR-qualifying investments have grown popular in recent years as part of schemes to reduce inheritance tax exposure. Once held for two years, certain holdings can potentially qualify for IHT exemption. However, as they are recognised as part of an investors’ gross estate, they could potentially push the estate into a higher bracket for probate fees and IHT in general.
John Humphreys, inheritance tax specialist, Way Investment Services, said: “Families who are looking for peace of mind can set up a trust, including a Letter of Wishes requesting the trustees to release funds to cover any probate feeds and any associated legal fees to obtain Probate, as well as providing a means to pay an IHT bill. That way lengthy probate issues and delays in being able to access the estate can be avoided. And from the government’s point of view, inheritance tax bills can be settled sooner.”
Humphreys also warned that to qualify for IHT exemption, a BPR qualifying investment needs to be held continuously for at least two years all the way through to death, which can create unrealistic demands on investment strategies. The investments would also need to remain BPR qualifying too, with changes to the status of the company impacting whether or not it remains eligible.
He added: “An issue with BPR investments in this scenario could arise where, from an investment perspective, it makes sense for an investor to sell a holding, but they hold on to it purely as part of an IHT-mitigation strategy – which would be very much a case of the tax tail wagging the investment dog.”
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