17
VALUE TO
ENTREPRENEURSHIP
What we can’t extrapolate from the
National Audit Office figures is how
much money is still invested in BPR
qualifying assets and how much new
money is going into them each year, but
we can speculate that it is significant.
And we can use the data that we do
have to make some educated guesses.
As we’ve noted, to establish exact
figures is challenging - there is no
single place (such as an exchange)
where data can be gathered, so it is
impossible to be 100% confident that
the whole-of-market is captured. Our
figures are based on desktop research
- reviewing marketing literature,
surveying investment providers and
kindly being granted access to the
data collected by platforms and review
providers. We believe they are the most
comprehensive and accurate figures
published to date.
From HMRC data, we do know that
slightly more than £1.5bn went into
EIS in the previous two tax years; over
£12bn has been cumulatively invested in
EIS since its inception. (EIS investments
are BPR qualifying).
Narrowing our focus to BPR, we can also
make an intelligent estimate based on
the AUM data that we have been able to
collect through desktop research, our
surveys and access to data provided
by comparison engine and review
provider MICAP. This is slightly more of a
guesstimate than the EIS figure, (because
there is no upfront relief being claimed,
HMRC does not collate this data), but we
calculate that there is somewhere in the
region of £2bn assets under management
in BPR products at the moment.
Taking the EIS and BPR numbers
together, that’s something like £14bn
of capital currently put to work in small
businesses that may not have found its
way there without investment products
built around these incentives.
To put this figure into some sort of
context, according to the BBA (British
Banking Association), total borrowing
facilities provided by banks for SMEs
stand at around £113bn. And the
think tank NESTA estimate than the
Alternative Finance market has provided
£1.8bn of finance in total (a number that
is growing fast).
The point has been made before, but is
worth making again - this is an injection
of capital into a vital part of the UK
economy:
In addition, BPR is absolutely not a pure
tax loss to HMRC when the contribution
of the investee companies is taken into
account - through Corporation Tax,
National Insurance Contributions, VAT,
employees’ income tax - the money
flowing into these companies via BPR
qualifying products is supporting the
economy and in turn the companies
are contributing to the overall tax take.
BPR incentivises the deployment of
capital into small businesses over long
timeframes - something that perhaps
only EIS, VCTs and BPR can achieve in
today’s economic climate.
While the concepts of avoidance and
evasion have merged somewhat
recently, it’s worth making clear that
BPR is a statutory relief established
in the 1976 Finance Act and the 1984
Inheritance Tax Act: it is not a tax
avoidance scheme of the kind that
occasionally lands celebrity investors
in hot water and it is not affected by
the General Anti-Abuse Rules (GAAR)
introduced in July 2013.
COMPARISONS TO OTHER
IHT SOLUTIONS
Whilst it is beyond the scope of this
report to cover in depth all of the estate
planning solutions that are available
to advisers, it makes sense to put BPR
into the context of other IHT mitigation
strategies as there are obviously
advantages and disadvantages
associated with each of them.
Broadly, there are
2 ways to reduce
IHT liabilities:
Asset reduction strategies
where steps are taken to reduce the
value of the estate
Asset replacement strategies
where assets that are liable for IHT are
replaced with exempt assets. IHT
solutions that utilise BPR would be part
of an asset replacement strategy
ASSET REDUCTION
STRATEGIES
CHARITY
We haven’t included charitable
legacies in our table below, but we
should mention them for the sake of
completeness. If 10% of an estate is left
to a registered charity, there is a 4%
deduction in the rate of inheritance tax
from 40% to 36%. It’s also worth noting
that donations to charities or political
parties made during the donor’s lifetime
are IHT exempt.
GIFTS
Gifts cover a wide range of possibilities.
Smaller gifts of up to £3,000 annually
are exempt from IHT. It is also possible
to make gifts from income, provided
that it can be demonstrated that they
are
a)
habitual
b)
made from post-tax
income and
c)
leave the donor with
sufficient income. This is a surprisingly
underutilised relief.
More common (and included in our
table) are Potentially Exempt Transfers
(PETs) where they are subject to IHT
on a sliding scale: three years from the
date of the gift there is 20% IHT relief,
and the relief increases by 20% every
subsequent year until 100% relief is
achieved after seven years.
£150m
£200m
£335m
£350m
£385m
VALUE OF
TAX RELIEF:
* less than 250 employees
08/09
09/10
10/11
11/12
12/13
Employment
69
%
Businesses
in the UK
99
%
Gross Value
Added
50
%
Turnover
47
%
SMEs* ACCOUNT FOR
(2014)
