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BPR products have, and continue,
to evolve with investment options
designed to cater for a variety of client
requirements, including varying levels
of risk and return. When it comes to tax
planning however, there are a number
of benefits common to the vast majority
of the solutions on offer. These include:
Speed of IHT relief
Access and control
BPR does not use the nil rate band
Transfers between spouses without
resetting the two year qualification
period, and
The replacement rules preserving
BPR qualifying status, provided
proceeds of qualifying investments are
replaced within three years.
Inheritance Tax can be a complex issue
with personal, political, economic
and indeed emotional implications,
making it an area that many clients
struggle to get to grips with. IHT can
have significant implications for clients
and their families, and the variation
in personal circumstances, needs
and motivations can make planning a
demanding subject. BPR arrangements
have a significant part to play and the
following are examples of just how
valuable such solutions can be.
ELDERLY CLIENTS OR
THOSE IN POOR
HEALTH
Planning Aspects
:
Speed; Spouse or
Civil Partner Exemption; Replacement
Relief
Many estate planning solutions either
require a client to survive a period
of seven years or rely on them being
able to arrange life assurance. For the
elderly or clients in poor health the fact
that planning involving BPR is effective
within two years and does not require
underwriting, can be of significant
value. This aspect can be further
enhanced where the adviser is dealing
with a couple who may both be elderly
/ infirm. On the assumption their wills
pass any BPR assets to each other on
first death, and then provided just one
of the couple survives a period of two
years, the exemption will be available
on the entire investment irrespective of
who dies first.
Finally, if a client has sold assets
qualifying for BPR within the last three
years, perhaps a business or qualifying
AIM shares, a sum equal to the proceeds
could be invested, and in this way, re-
qualify immediately without the usual
two year qualifying period.
ATTORNEYS
AND DEPUTIES
Planning Aspects
:
Simplicity & Speed
When an individual loses mental
capacity, their financial affairs will be
dealt with either by an Attorney or
a Court Appointed Deputy. In these
circumstances significant limitations
are imposed in relation to lifetime
gifts (for Attorneys, Section 12 of the
Mental Capacity Act 2005). Similar
limitations are normally placed upon
Deputies, and while it is possible to
make gifts under a Continuing Power of
Attorney in Scotland, it is still unusual.
As the individual who has lost capacity
cannot therefore make gifts either
outright or into trust; directly or via his
Attorney/Deputy, the ability to make
an investment that will become exempt
from IHT after two years, can often be
the only solution.
COMBINING BPR
AND TRUSTS
Planning Aspects
:
Distribution to
multiple beneficiaries
It is a fairly common scenario; both
husband and wife are on their second
marriages, both with children from
their first marriage and with separate
finances. While they may have agreed
that their own money will be passed to
their own children upon their death, one
partner may have a much higher income
so wants to ensure that their spouse
receives sufficient financial support in
the event of his or her own death.
The simple solution to this situation
is to leave the income from the richer
partners’ capital to their spouse in
their will via an Immediate Post Death
Interest Trust (Interest in Possession
Trust). On the death of the second
partner, the capital is to be distributed
to the first partners’ children from the
first marriage. However, the value of the
trust fund will be deemed as an asset
of the second partners’ estate, and, as
such, liable to IHT.
If the Immediate Post Death Interest
Trust were to invest in a BPR product,
then after two years of shared
ownership, assuming the second
partner survives his or her spouse by
this period, and the arrangement is
held until the time of his or her death,
then the trust assets, to the extent
that they are invested in BPR products,
will be exempt from IHT. This strategy
would also enable the full amount of the
surviving partner’s own nil rate band to
be applied against his or her own estate,
thus protecting it for the full benefit of
his or her own children.
TAX PLANNING SCENARIOS
