A common objective for many of our clients is to pass on money to their families on their death. With house prices having escalated significantly, a greater number of estates have become subject to inheritance tax, reducing the amount their loved ones receive.
In response, the Chancellor has created an additional nil rate band relating to the family home which will be phased in over the next few years. Potentially for a couple with a home worth £500,000, they may be able to pass on a joint estate of £1 million not subject to inheritance tax. It should be noted that this only relates to homes passed on to direct descendants; it also doesn’t address the inheritance tax concerns of those who don’t own a property.
If after these additional measures you still have an inheritance tax liability, you may look to give away assets thus reducing the size of your estate. This can be problematic in that you can’t then use those assets, but often more importantly you need to survive a further seven years from the date of the gift for it not to be added back into your estate for IHT purposes.
There are however, investments that can be made that allow you to achieve 100% relief for inheritance tax purposes whilst remaining under your control and from which you can access funds if required. It’s a relief that owners of small family businesses will often use to pass on shares in their unquoted trading companies free of tax, and is known as Business Property Relief (“BPR”).
But if you don’t own a family business you can still take advantage of this relief. One of the simplest methods can be to acquire a portfolio of qualifying trading company shares quoted on the AIM share market. Provided you hold the shares and survive for 2 years from purchase, the value of those shares will be 100% relievable. It should be remembered that shares on the AIM market can be higher risk and will not be appropriate for everyone. You should take appropriate advice before investing.
If AIM shares sound too risky for you, there are other investments that make use of BPR by holding shares in unquoted companies that engage in trades such as asset finance, solar power, and property finance. They focus more on capital preservation producing predictable, modest returns rather than high growth. There is an increasing number of providers in the market and they are often complex in structure, and again taking advice is highly recommended. These investments can, however, be highly effective in both individual and trust tax planning.
If you do need advice regarding investments that benefit from Business Property Relief or any aspect of Inheritance Tax, please call 01254 679131 or contact one of our advisers:
Richard Hesketh (firstname.lastname@example.org) – Wealth Management and Investments
Jane Parry (email@example.com) – Head of Tax