One potential solution, or as part of a wider strategy for mitigating inheritance tax, can be to use Business Property Relief (BPR). This is an HMRC tax relief that has been in the main stream of tax planning since the 1970s, now in its 40th year.
Business Property Relief investment strategies
BPR was established for use by people who had businesses of their own, so that the business did not have to be wound up on the death of a family member. This is still very much one of its uses today and if you run a small business you should check to see if your business can qualify to help with any Inheritance Tax (IHT) issues you may have.
As the Government’s inheritance tax take rises, providers have designed investments giving access to BPR-qualifying trades.
BPR applies to certain trades carried out by SMEs (Small and Medium-Sized Enterprises), providing valuable investment into this vital sector which contributes significantly to the UK economy, and one which the government wishes to encourage investment into. The SME sector creates high numbers of jobs as well as making a large contribution to UK Gross Domestic Product. According to an industry report (2016 AiR report), total employment in SMEs was 15.6 million in 2015. Current ONS figures state there are currently 31.81 million people in work in the UK therefore SMEs employ almost half of all of those in employment.
If using BPR solutions it should not be forgotten that investing into smaller companies is higher risk. But many BPR investment providers try to manage this risk by employing capital preservation investment strategies such as renewable energy and asset-backed lending.
Renewable energy
Many of the providers invest into this area that includes solar energy, wind power, hydro-electricity and bio-mass. The government has provided enhanced subsidies for investment in this area to meet their renewable energy generation obligations. As an investor into this area it can offer predictable and long-term income streams. Furthermore, due to the Government subsidies, this income stream is inflation linked and locked in for 20 odd years, regardless of future policy change on energy generation.
Asset-backed lending
This meets the capital preservation mandate due to the first charge over property or assets the BPR provider insists upon.
Conventional sources of finance for building development (i.e. banks) have dried up since the financial crisis. This allows room for other specialist lenders, such as BPR investors, to satisfy the demand for finance the building sector has. Typically loan finance of up to 65-75% of the estimated market value of a property project is provided to experienced property developers. Should the borrower default, the land or property is owned by the BPR provider and thus losses to the investor are limited.
A further investment strategy that fits into this asset backed area is investment into UK infrastructure projects. The Private Finance Initiative was introduced by the Government in 1992 as a way of encouraging funding for public sector infrastructure projects such as schools, hospitals, libraries, fire and police stations.
There is of course a myriad of other BPR investment opportunities out there; some more esoteric than others. The BPR sector is innovative, responsible, UK PLC focused and can offer those seeking to mitigate an IHT liability with further choice over and above more tradition gifting and insurance routes.
If you would like to gain a greater understanding of BPR and other Inheritance Tax mitigation strategies, then please join us at our free Inheritance tax seminar on the 1 December 2016. For more details and to reserve your place, please click here.
Swindells Financial Planning has helped numerous clients put in place plans to reduce potential IHT liabilities using a number of non-contentious planning strategies.
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.
