Plenty of life in death and taxes

Barry Lynas



A growing issue

HM Revenue & Customs (HMRC) is collecting more Inheritance Tax (IHT) than ever before. According to the Office for National Statistics, IHT receipts for 2016/17 hit a record total of £4.9 billion. Moreover, even with the new Residence Nil-Rate Band, which came into effect in 2017, the Treasury expects annual IHT receipts to top £5.3 billion this tax year.

Settling assets into trust can be an attractive way for many people to pass assets down from one generation to the next. However, trusts also come with limitations, most notably the time it takes for assets settled into trust to cease to be part of the settlor’s estate when they die. Additionally, since 2006, the entry, exit and periodic charges applied to discretionary trusts can make settling significant amounts into trusts unattractive.

A Complementary Alternative…

There is a growing universe of Business Relief (BR) investment solutions available, which is driving interest in this area. Investments that qualify for BR can be passed on free from IHT upon the death of the shareholder, provided the shares have been owned for at least two years and are still held at the time of death.  Alongside the relatively swift route to IHT relief, optimal solutions can also offer clients several other key benefits:

  • Control of and access to capital if required
  • Portfolio investment options including Capital Preservation or Growth
  • Transparency of underlying investments
  • Diversification across a range of assets and sectors
  • A simple process that does not involve complex legal structures or medical examination

Contrary to what some might assume, capital preservation-focused BR portfolios are not new. BR itself is of course a well-known relief introduced in 1976, used since inception to assist individuals and their families in mitigating IHT liabilities. More recently, many capital preservation BR portfolios have become established in the market and used by customers. However others who could also benefit may still perceive them as new or uncharted territory.

Belt and Braces…

With an awareness of such reservations, in recent years a handful of more forward-thinking providers have recognised in advisers and clients one specific need: to have immediate protection from IHT, prior to exemption being achieved. Blackfinch Investments is among these. Our Adapt range of IHT Portfolios now includes an offering with integrated life cover. It’s a cost-efficient solution that also targets a return on investment, alongside delivering protection through life cover.

The recently launched Adapt IHT Protected Portfolios provide beneficiaries with immediate protection from the impact of IHT on the amount invested, from the date the shares that are acquired until the second anniversary. At this point the investment should qualify for BR and become exempt from IHT.

The service is specifically designed for those who value the peace of mind that comes from knowing that their beneficiaries won’t unduly suffer if an IHT bill is applied to their shares. The life cover will provide a payment of 40% of the gross investment amount, e.g. £100,000 cover on an investment of £250,000, in the event of death within the two years from the date on which shares are acquired. (No medical – T&Cs apply).

The proceeds of the life cover policy will be payable to the beneficiaries which have been nominated in the application form, and should fall outside the estate.

Ultimately the capital preservation strategy that customers have come to value in IHT mitigation products, is now further enhanced by the addition of the life cover policy. It creates an offering that addresses client and adviser needs, and in turn the issue of IHT.

CAPITAL AT RISK

For more information about our Adapt IHT Protected Portfolios please click here

To download this article please click here