By Octopus Investments
For professional advisers and paraplanners only. Not suitable for retail investors.
Estate planning is now a key consideration for many. Helping clients to pass on as much wealth as possible to loved ones is not only important to them but is an opportunity for you to add value.
Business Relief (BR) can be a helpful solution to an inheritance tax (IHT) liability for clients at different stages of their estate planning journey. Remember, BR is a high-risk investment and isn’t suitable for everyone.
Let’s look at some scenarios where it might be appropriate.
Balancing control and legacy
Giving away assets is a common concern for clients when it comes to estate planning.
Take Carol for example.
Her adviser explains that she can afford to give away some of her assets but having been in control of her wealth all her life, Carol is reluctant to make gifts or use trusts.
Carol worries that if her health deteriorated, she might need the money to pay for care fees. In addition, if she makes a gift now, and passes away within seven years, she’ll leave her beneficiaries with an IHT bill.
After Carol’s adviser assesses her circumstances, she recommends a BR-qualifying investment as part of the solution to her IHT liability.
The investment can be left free from inheritance tax when Carol passes away, provided it has been held for just two years. Additionally, she can request a withdrawal and access the money she invests, should she need to. Her adviser makes it clear that withdrawals are not guaranteed though.
Read Carol’s scenario in more detail
When a power of attorney is in place
Lawyers often refer clients to a financial adviser to help with estate planning when there’s a power of attorney in place.
Estate planning options can be limited in this situation, and any decisions need to be made in the best interests of the donor.
Tom is a power of attorney for his grandparents Barbara and Malcom.
He’s mindful of their inheritance tax liability, where Barbara and Macolm have expressed their desire to leave as much of their estate as possible to their great-grandchildren.
Although the costs of care are currently being covered by Barbara and Malcom’s pension, Tom is reluctant to make gifts from their estate in case they need the money in the future. Making gifts can also be a more complex process when a power of attorney is in place.
After assessing their situation, an adviser recommends moving some of their existing investments into a BR-qualifying investment.
This would be in Barbara and Malcom’s name, so they’re able to access the money if they need to (subject to liquidity). It will also become free from inheritance tax after two years, provided they’re still alive.
Key risks to keep in mind
The value of a BR-qualifying investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
Tax treatment depends on individual circumstances and could change in the future.
Tax relief depends on companies maintaining their BR-qualifying status.
The shares of unquoted and AIM-listed companies could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
BR-qualifying investments are not suitable for everyone. This communication does not constitute advice on investments, legal matters, taxation, or any other matters. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: April 2024. CAM014032.
