Accelerate your inheritance tax planning
Posted by: Nicola Macdonald, on September 6, 2016.
In the tax year to April 2016, the government’s Inheritance Tax (IHT) take was £4.66bn (Office for National Statistics). That’s up more than 20% on the year before and by 2021, IHT is forecast to be bringing in £5.7bn.
Arguably, one of the best ways to avoid IHT is to die with too little in the way of assets to be obliged to pay it. This may not be too hard for a couple.
- You get a total of £650,000 in IHT allowance between you, plus
- From 2020-21 another £350,000 exemption for your family home provided it is left to your family
- So a total of £1m
But if you’ve exhausted many of the obvious planning strategies e.g. gifting to individual or Trusts, insurance, retaining assets within a Personal pension etc and you still have an IHT liability, then:
What other option do you have?
Business Property Relief (BPR)
Business Property Relief (BPR), introduced in 1976, is a tax relief provided by the UK Government as an incentive to increase investment in certain types of trading businesses.
- Qualifying BPR shares benefit from 100% IHT relief provided that shares are held for a minimum of two years and are held at death.
This offers significant benefits when compared to those conventional methods of estate planning, such as Trusts and gifts, which can take up to seven years to become fully effective and often require giving up control of assets.
Whilst two years is generally preferable to seven, this can still leave an uncomfortable window whereby individual’s estates are potentially subject to a 40% IHT liability.
One provider of such products has developed a unique solution to bridge this two-year period, combining a group life insurance policy with BPR qualifying investments, offering qualifying investors the peace of mind that comes from knowing their liability will be covered from the moment they purchase their BPR qualifying shares.
It should be noted that such investments invest into unquoted UK companies and any BPR investment should be considered carrying a high degree of risk.
However, with the correct planning and in the right circumstances BPR investments can be a very effective tool in helping to mitigate IHT.
Swindells Financial Planning has helped numerous clients put in place plans to reduce potential IHT liabilities using a number of non-contentious planning strategies, such as BPR investment.
We are always here to answer any questions you have. So please give us a call on 01825 76 33 66 or fill in the contact form.