By Dominique Butters
Senior Business Development Manager
How would you like to be able to tell your clients about a route to Inheritance Tax (IHT) mitigation that could bring relief in two years (if held at death) that will also benefit the UK economy? And, as a bonus, is an asset class in its own right, so aiding diversification in their portfolio.
Well you can with a good understanding of Business Relief (BR) and how it goes hand in hand with IHT relief. The UK Government introduced BR way back in 1976 to ensure that family-owned companies did not have to be broken up to pay IHT bills.
BR has always been about supporting UK businesses. It allows qualifying assets, including shares in UK unquoted companies, to become exempt from IHT after two years if held at the time of death. It can reduce the value of certain assets liable by up to 100%.
But, despite it being introduced over 40 years ago, there’s still much more awareness of IHT as a problem than of BR as a solution. That’s because we’ve only really seen an IHT mitigation track record being established for BR over the last 15 years. This includes thousands of deaths where BR-qualifying investments have been passed to beneficiaries free of IHT.
Now is definitely the time to talk to clients about BR. The storm clouds are gathering around IHT, which continues to be dreaded as the 40% death duty. Figures released earlier this year show that the UK’s collective IHT bill is now at a record high of £5.2 billion (HMRC: 2018). Factor in our aging population, and decades of rising house prices, and it’s clear that IHT is going to be an issue for years to come.
Incredibly complex IHT legislation, along with the collective client liability, doesn’t help either. And it makes for an onerous process, with mountains of paperwork for IHT solutions such as gifts and trusts. Even after a client has invested, they could be stuck with filling out tax returns annually; and other HMRC forms every time they withdraw funds; and every ten years.
No wonder the main recommendation from the Office of Tax Simplification, which published its review of IHT in November 2018, has been to reduce the amount of forms and information required from clients.
Let’s not get started on the accompanying charges for these ‘traditional’ solutions. As part of what may be a seven-year wait for IHT relief, clients could incur an entry charge of up to 20% of their investment, plus periodic and exit charges.
So why has the Government made the legislation around the traditional solutions so complicated? The answer is simple. They’re not the Government’s preferred choice for IHT mitigation! These solutions can be invested anywhere in the world, so money from them won’t be channeled into the UK economy.
In contrast, the Government has provided BR to support UK businesses as part of estate planning. When clients use it the UK stands to gain, as investments are made in growing UK companies that will help to strengthen the UK economy.
This is a key point and a great thing to be able to explain to clients, especially those who might be uncomfortable with the idea of tax mitigation. By investing in a BR-focused IHT solution, not only will they be protecting their own legacy but also helping to future-proof the UK economy – really giving something back.
Let’s take BR-qualifying investments in property as an example, one of the areas in which Blackfinch specialises. With a massive housing shortage in the UK, a client investing is going to help alleviate this issue. And that comes along with the property development creating jobs and giving a boost to local communities.
As part of encouraging investment, the paperwork is also no fuss, with just one application form to complete. The client’s investment can then be listed on the IHT 400 form on death as an exempt asset if it has been held for two years or more, and that’s it.
So there are many reasons to direct clients towards BR-qualifying investments to mitigate IHT. At Blackfinch we know a good thing when we see it, which is why we launched our business with a BR-focused IHT solution. And we continue offering BR-focused products to this day.
Through our Adapt IHT range, we have built on the benefits of BR to provide flexibility, control and value for investors, along with plenty of support for advisers. So, if you need more convincing about BR, just get in touch at [email protected] or on 01684 571 255.
CAPITAL AT RISK.