There has been a great deal of commentary in recent months on the use of business relief (BR) as an offset for inheritance tax planning (IHT).
However, IFA Magazine asked advisers whether or not this media presence has translated into uptake in practice. The thoughts of advisers, financial industry experts are below.
Samuel Mather-Holgate, Independent Financial Advisor at Mather and Murray Financial: “Business property relief is one of the best tools for mitigating inheritance tax liabilities. In only two years, your investments could be outside of your estate for IHT and you lose no control. More and more firms are offering portfolios that attract BPR, some in AIM shares and others that are even more adventurous, but for clients with the risk tolerance, it’s a great planning tool. Clients have an immediate capacity for 40% loss, if you view it as that is how much the tax man would have taken anyway. Most providers who have been offering this service for long enough have a good track record.”
Philip Dragoumis, Director and Owner at Thera Wealth Management: “Investments that qualify for business relief certainly do have their place in inheritance tax planning. They can be valuable succession tools for the right client, as long as they and their families are made aware of the illiquidity, the costs and the risks. Advisers must however undertake extensive due diligence on the providers and the solutions available and ensure their recommendations are sufficiently diversified to reduce risk. We would expect growing interest in this area as estates and potential IHT bills grow over time but we are mindful of rumours that these reliefs may be restricted or abolished by the government.”
Steven Mather, Lawyer & Director at Steven Mather Solicitor: “Planning for death is crucial for any business owner and so utilising business relief to reduce inheritance tax is essential. In most small businesses, we will utilise a shareholders agreement with cross-option planning, backed by relevant life insurance policies, to ensure that on death the deceased’s shares are purchased by the surviving shareholders using the insurance money, to ensure that the estate just gets cash. Such planning is outside of IHT anyway.
“For those with other investments, BR and IHT planning is essential. The alternative to planning is that the shares pass to the estate, IHT is payable on their value, and then the estate is entitled to be involved in the company. This is often not what the founders would have wanted. As always, BR and IHT planning is something that requires specialist expertise and experience so the best advice is to take advice.”
Scott Gallacher, Director at Rowley Turton: “The recent commentary on using Business Relief (BR) for Inheritance Tax Planning (IHT) reflects a rise in popularity from around a year ago, as low interest rates and rising property prices led to heightened interest. However, interest has slowed down recently due to the opposite trend in interest rates and property prices. Despite this, I remain confident in advising clients on BR for IHT planning as it can still be an effective strategy depending on the individual’s circumstances. Ultimately, clients should seek professional advice before making any financial decision.”
Tahina Akther, Barrister and Co-Founder at Wildcat Law: “This is a brilliant example of why estate planning should involve a team of professionals. For many business owners looking at passing their hard earned wealth and assets to their family a simple Will is just not going to cut it, unless they are happy to leave a very large gift to the tax man. Instead a combination of financial planning, accountancy and law is required to provide the desired outcome without a big tax bill.
“BR can be incredibly effective at mitigating inheritance tax but historically it has often been dealt with by accountants and kept separate to estate planning/Will writing. It is also important to ensure that executors are brought into the conversation as part of the planning stage or that professional executors are appointed who understand what is being planned.”
Bradley Lay, CEO at Bradley Lay Ltd: “As a business owner, it’s crucial to have a solid plan in place for mitigating potential inheritance tax (IHT) liabilities. Business relief (BR) can be an effective tax planning strategy, but it’s important to carefully evaluate the risks and rewards before making any decisions.
“To qualify for BR, your business must be actively trading and certain assets must be considered necessary for the trade. While BR can offer significant tax relief, there is a risk that your business may not qualify for relief or that relief may be reduced in the future. Evaluate the potential risks carefully before making any decisions.
BR is just one tool in the IHT planning toolkit. Consider other strategies, such as gifting, trusts, and life insurance policies, to help further mitigate your tax liabilities”
Paula Steele, Director at John Lamb Hill Oldridge: “We are very comfortable advising on business relief, not only in terms of “product” available but also relievable assets within clients’ overall asset positions and in the use of Balfour arrangements. We have seen a significant increase in client interest, and also their advisers.”
Managing Director at Kingsfleet: “The main reason we use Business Relief (BR) arrangements is their simplicity. Whilst there is also merit in some more complex Inheritance Tax (IHT) planning, BR strategies allow a swift impact and a generally acceptable level of risk. Given that some providers offer insurance to cover a liability that could arise within the first two years of holding the asset, it can have a rapid impact on the IHT liability of the estate.”
