16
In this section we’ll look at the
legislation behind BPR and trace how
the BPR market has developed over the
last 30 years. Towards the end of the
section we’ll also compare BPR with
some of the other IHT solutions that are
available to help advisers put BPR into a
whole-of-market context.
ORIGIN
BPR was introduced in the 1976 Finance
Act to allow the owners of small
businesses to pass on business assets
to their beneficiaries without paying
IHT. Previously the IHT liability had been
seriously impairing some businesses,
necessitating the sale of some or all of
the business and hampering growth
and productivity in this vital part of the
economy.
Over time, the scope of the relief was
widened allowing more people to
access it and achieve greater levels of
relief. Successive governments came to
understand that the relief incentivises
investment into small and medium sized
businesses. (We’ll look at the specifics
of what sorts of companies and assets
qualify in a later section of the report).
So the initial relief has transformed
from something rather narrow into a
much more generous relief. Since 1996,
investors with small, non-controlling
shareholdings in qualifying businesses
and/or partnerships can claim 100% IHT
relief. Furthermore, shares listed on the
Alternative Investment Market (AIM)
and the ICAP Securities & Derivatives
Exchange (ISDX - known as PLUS until
the exchange was bought by ICAP in
2012) also qualify.
This has been confirmed in several
iterations of the Inheritance Tax Manual,
most prominently in IHTM 18336:
“The AIM (Alternative
Investment Market) was
launched in June 1995
with the aim of attracting
a wide range of new, small
and growing companies.
This market replaced the
USM
(IHTM18339)
, which
closed at the end of 1996.
Shareholdings in AIM
companies are regarded as
‘unlisted’ for (and only for)
the purposes of business
relief
(IHTM18333)
, loss on sale
of shares
(IHTM34132)
and
instalments
(IHTM18334)
”
These developments opened the
door for stockbrokers and investment
managers with expertise in small
business investing to run discretionary
portfolios and develop products that
helped investors claim BPR and mitigate
their IHT liabilities. The requirements
were simple - pick a portfolio of safe
investments that minimised the risk
of capital loss while providing at least
inflation matching returns; and monitor
them closely to ensure that they stayed
within the legal framework of BPR
qualification. Simple, but not easy: it
requires some investment skill, which is
why it would be hard to replicate this on
a do-it-yourself basis.
GROWTH OF THE MARKET
Establishing exact figures for the size
of the market is difficult. As with all
non-mainstream, unlisted products,
up until now there has not been a
central repository of data where all of
the products, their AUM, performance
and other attributes can be analysed.
However, the National Audit Office
(NAO) does collect and publish data on
tax reliefs. Their data is for the total
amounts claimed under BPR, which
includes small businesses (i.e. it’s not
just for IHT mitigation products):
Two points are worth making here:
firstly (as the NAO note in their report)
the cost of BPR (to the exchequer) is
rising faster than the overall revenue
collected from IHT. Secondly, when the
£3.4 billion paid in IHT in 2013/14 is set
against the £385 million BPR that was
claimed in 2012/13 (the last year we
have figures for) we can see that it can be
considered to be an under-utilised relief.
We also researched the number of
BPR products in the market and found
that there are currently slightly more
than 50 products from 38 providers.
This feels like a reasonably competitive
market for what has been a niche
service - enough competition to ensure
customers can get value for money,
but not a confusing marketplace full of
opportunistic firms trying to cash in on
the demand. As noted above, managing
these products requires experience and
the appropriate scale, so there are some
barriers to entry. We take a closer look
at this in our market analysis section.
HISTORYANDMARKETOVERVIEW
Total number of products and services
50
40
30
20
10
0
BPR MARKET GROWTH
(1995-2015)
400
300
200
100
0
2008/09 2009/10 2010/11 2011/12 2012/13
VALUE OF BPR
(2008-2013)
(£m)
