44
EIS
SELECTION
PORTFOLIO
MAKE-UP
T & C
TIME
HORIZON
ATTITUDE
TO RISK
KNOWLEDGE
& EXPERIENCE
AGE
OF CLIENT
TAXATION
BENEFITS
CAPACITY
FOR LOSS
OTHER TAX
ADVANCED
SCHEMES
SOME OF THE KEY CLIENT SUITABILITY CONSIDERATIONS
“Corporate BPR solutions, which help ensure a trading business holding excess cash continues to qualify
for BPR whilst retaining access to the capital, have the potential to help hundreds of small businesses
across the UK, representing a new income stream for many advisers”
Nigel Ashfield, TIME Investments
exemption – is not allowed to wag
the investment dog. The tax benefits
should not be looked at in isolation.
Advisers will need to consider the
suitability of any BPR investment for
a particular client, taking full account
of their detailed circumstances and
their attitude to risk. However, the
clear advantages of BPR means it could
have a significant part to play in many
investors’ estate planning.
USE OF BPR ALONGSIDE
OTHER SOLUTIONS
A BPR solution can be used alongside
trusts and life assurance, and in reality
this would be a sensible approach. If
estate planning is started early enough,
clients can maximise their use of gifts
and trusts as well as using BPR to
mitigate IHT. Indeed, if “early enough”
means affluent clients in their 50s and
60s, accessing BPR via an EIS might be
the best option if they are still looking
for some investment growth.
This would be a mixture of an “asset
reduction” strategy - gifting money to
beneficiaries to reduce the size of the
estate - and “asset conversion” strategy
- converting the estate into IHT exempt
assets. This two pronged approach
is probably going to be the most
appropriate solution in many cases.
In this scenario, life assurance and
trusts can provide a more conservative
foundation for the estate planning
- ensuring that what the client feels
is essential for their beneficiaries is
passed on in a tax efficient manner.
Alongside that, a BPR qualifying
investment will still benefit the client
with potential growth and ease of
access, whilst putting much more of
their wealth outside of the estate.
This is one way of looking at how BPR
fits into the investment versus IHT
mitigation equation.
BPR AND STAGE-OF-LIFE
If a client is still relatively young (say,
65) and healthy when they begin to
discuss estate planning with their
adviser, then traditionally the first
options to be considered would be gifts
and trusts, as the seven year timeframe
to achieve 100% IHT exemption is not
a major concern. However, now that a
healthy 65 year old could be looking at
living into 90s, losing access to those
funds could be troubling as they may be
required for future needs such as care.
This is one example where BPR should
be one of the options discussed with
the client .
One strategy that could be considered
here is a plan of rolling EIS investments
that are invested into BPR products as
they mature. This takes advantage of
the more generous EIS tax benefits,
builds up a portfolio of BPR qualifying
assets and reduces the risk profile of
the portfolio as the client ages and
capital preservation takes precedence
over accumulation. EIS is especially
powerful when you consider the ability
to defer a CGT liability indefinitely.
At the other end of the scale if an older
client in poor health has ignored the
issue of estate planning up until now,
BPR would be the swiftest way to
achieve IHT relief given that there could
be some doubt over the client surviving
the seven year timeframe involved with
other solutions
.
SPECIAL SITUATIONS:
BUSINESS AND BPR
Although BPR was originally conceived
for small businesses, many business
owners do not realise that they may
still fall foul of the rules and lose access
to the relief - particularly if they are
holding large reserves of cash. These
reserves may have been built up
over the years, or may be the result
of a recent sale of some business
assets, but if they can’t be shown to
be required for the running of the
business, they will be considered a non-
exempt asset and and could jeopardise
any IHT relief.
Some BPR providers offer a solution to
this problem by setting up a subsidiary
company that invests the surplus cash
into BPR qualifying investments. This
means that BPR and entrepreneurs
reliefs are reinstated, but the business
can still access these funds should
it need to (obviously subject to the
liquidity of the underlying investments).
These products help fulfil a real need
for the investors – anecdotally we know
that many small business owners either
