15
BUSINESS
OWNERS
Planning Aspects
:
Protecting a
business windfall
For many business owners their
business offers the perfect shelter from
IHT. However, when the business is
ultimately sold the protection from IHT
will be lost. This need not, however, be
the case if the proceeds are invested in
a BPR product.
BPR IS A GATEWAY TO
DISCRETIONARY
TRUSTS
P
lanning Aspects
:
Mitigating tax
on chargeable lifetime transfers
In 2006, the Government made some
fundamental changes to the taxation
of trusts. This left Discretionary Trusts
as effectively the last remaining type
of flexible IHT efficient trust. Gifts
to Discretionary Trusts, however, in
excess of the nil rate band, are subject
to a 20% up front chargeable lifetime
transfer tax. In practice, due to the
grossing up rules, this charge is actually
25% on the settlor in most occasions.
However, if the investment to be
placed into trust is held in a BPR
qualifying asset for two years prior
to being moved into the trust, it
eliminates any chargeable lifetime
transfer. Furthermore, where monies
going into the Discretionary Trust
were within three years prior eligible
for BPR, it is possible to make a BPR
investment (replacement relief) and
immediately transfer the funds into
the Discretionary Trust; again avoiding
any chargeable lifetime transfer. It is
important to note however given the
current political climate in respect
of tax avoidance, that this latter
solution should not be pre-ordained.
A WORD OF WARNING
Given the attractions of BPR investment
solutions, it is not surprising that it is a
subject on HMRCs radar. The Finance
Act 2013 introduced anti avoidance
provisions specifically to deal with
one type of planning using BPR which
it considered at least against the
spirit of what Parliament intended.
The measure introduced by the Finance
Act concerns the basic rule that IHT is
charged on the net value of an estate
after deduction of liabilities. If, prior
to the 6 April 2013, an individual died
with an outstanding debt that was
used to purchase a BPR Investment,
their estate effectively got double
benefit for IHT purposes - BPR was
used as both an asset replacement
AND asset reduction strategy.
Under the new provisions, where a
liability is attributed to financing the
acquisition of property which qualifies
for BPR, the liability will reduce the
value of the investors’ estate only if
it is paid out of the estate in money
or monies worth. This is to ensure
that loans financing the purchase
of exempt or relievable property
are deducted from the value of the
assets qualifying for relief, such that
there is no double tax benefit.
SUMMARY
BPR products are now firmly
established, reasonably well
understood and offer a plethora
of potential solutions in the estate
planning market. One misconception
remains however, that they also
represent an alternative strategy to
the more common IHT mitigation
tools. The reality is that BPR should
be seen a complementary solution,
that can be combined with many
other techniques; almost always with
interesting and enhancing results.
“BPR products arguably represent the single most diverse retail IHT planning vehicle
currently available"
Tony Müdd, St. James’s Place
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