Sales of business
What a wonderful time it is for many clients when they finally get to benefit from the fruits of their labour; when they sell their business! But who is going to tell them that when they sell, they have probably just lost 40% of its value on day one?
They have not actually lost this money personally, but their heirs may well do… Why? The owners were probably eligible for Business Relief (BR) when they held their business shares but to qualify for 100% Inheritance Tax (IHT) relief, clients must also still be holding the shares at the date of passing away. Not a good enough reason to die but an annoying downside to when the client sells their business!
What is the solution? There is always gifting or trust planning; but the trouble is many clients do not want to give their money away at that point (and certainly not all of it) as they want to enjoy it! Even if they do give some money away, they may have to live for seven years for it to be fully IHT exempt. This can seem like a lifetime especially when understanding why clients typically sell their business; when they feel too old to keep running it, when they retire or are in poor health.
What is the alternative? Buy another Business Relief (BR) asset(s).
HOW IT WORKS
Assuming the business sold was BR qualifying and the client reinvests the sale proceeds (within three years of the sale) into another BR asset they will regain IHT exemption on their shares immediately. So, if the client died, literally the following week after re-investing there would be no IHT payable! They do not need to have held the new BR asset for another two years before death because Replacement Property Relief states that a person can replace one BR asset with another within three years and it does not reset the two year clock. The client must hold the BR asset on death and have done so for two years out of the past five years for it to qualify for 100% IHT exemption.
One of the most appealing aspects is that because BR is attained on shares the client has not given any money away; they will always retain access and full control over their money so if they ever need it, they can have it. Whatever is left within the BR asset when they die is IHT exempt for their beneficiaries.
An interesting court case where a solicitor did not refer a client for tax advice in this situation is Swain V Mills and Reeve; one to mention to solicitors and accountants as they do not want to be put in this same situation.
Advisers should see all clients who are looking to sell their business and those who have already sold in the past three years, as this is probably one of the most effective IHT planning tools available.
THE BLACKFINCH SOLUTION
We offer two BR qualifying investments:
- Adapt IHT Portfolios which invest in a blend of lending and renewables and offer two targeted return portfolios; Capital Preservation Portfolio targeting 4% p.a. and Growth Portfolio targeting 6% p.a. both net of fees.
- Adapt AIM Portfolios which offer two choices, an Income Portfolio with a natural yield (currently approx. 4% p.a. paid quarterly) and the second, a Growth Portfolio. Both options invest in a diversified portfolio of 20 and 40 AIM stocks which qualify for BR. This product is designed for those clients looking for good potential for capital growth over the long term. Both AIM Portfolios are also eligible for ISAs.
From a technical point of view, the Blackfinch team are happy to discuss client cases, accompany advisers to their client meetings or undertake presentations to solicitors and accountants. We can also provide draft suitability wording for advisers to utilise in ongoing cases.
If you would like to find out further information about the range of Adapt AIM Portfolios, please contact:
01684 571 255
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