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sell and let their relief lapse (not taking
advantage of the three year window to
buy replacement BPR qualifying assets)
or they keep running a business they
would ordinarily have retired from
years ago - solely in order to retain the
IHT relief. Neither of these outcomes is
necessary, but low levels of awareness
of BPR investment products mean these
are common mistakes.
One of the issues is that the problem
might not ever come to the attention of
a financial adviser: it tends to sit with an
accountant who doesn’t ask the same
sort of financial planning questions that
advisers do. The fact that the business
owner wants to exit but has concerns
around estate planning doesn’t come
to light, and they are never made aware
that they have other options. This is
almost the worst of all possible worlds,
as very often the business is ran down
as the owners age or lose interest –
when in fact it could have been sold at
the height of its value.
So, as in the case with other tax efficient
investment products, it often pays
advisers to leverage their network
of professional connections to help
identify potential clients. The advice
process for a corporate BPR client will
look slightly different: they already
own BPR qualifying assets, so there is
no need to introduce them to a new
concept; they will already be well aware
of the legislation and be sophisticated
enough to easily pass suitability and
appropriateness tests. However, very
often there will be more stakeholders
advisers need to engage with if the
decision is taken by a board, or involves
other owners or family members
connected to the business.
This is good, new incremental business
for advisers, as it doesn’t cannibalise
anything from existing business – and if
they are likely to continue to advise the
client’s beneficiaries, they have a vested
interest in preserving as much of the
estate as possible.
When it comes to the products
themselves, there are only a small
number on the market (four according
to our research), but there are some
differences in terms of the levels of
liquidity and flexibility that they provide
- some are more bespoke than others
and will allow any trades within the
providers’ structure, some stipulate
that only the provider will manage the
trades, some allow the client to retain
the subsidiary company structure even
after they dispense with the providers
services, some are structured as a
single entity that all investor companies
participate in. Even in this narrower
niche, it is still worth the adviser
exploring which product is the best fit
for a particular client.
No action
taken
Planning
with BPR
Business
Value
£5m £5m
Capital
Reserves
£2m £0
(invested in
BPR trades)
BPR
Qualifying
Amount
£3m £5m
IHT Liability £800,000
(40% of £2m)
£0
Two final post scripts to this segment:
some firms with a large excess cash
balance choose to invest in BPR as an
alternative to keeping cash on deposit at
paltry rates of interest and some clients
use a BPR investment to turn a cash
shell company into a trading company
(and hence BPR qualifying).
BUDGET UPDATE:
ENTREPRENEUR’S RELIEF
These corporate BPR products were
impacted by changes that were
announced in the small print of the
2015 Budget. The products structure
the subsidiary company as an LLP or JV.
These are qualifying trades for BPR, but
after the 2015 budget these structures
no longer qualify for Entrepreneur’s
Relief (which reduces the tax that is paid
on any gains in the value of the business
from 28% to 10%).
So although the products remain very
attractive for providing the IHT relief,
for some businesses they’re going to
be less appealing in the future. Broadly,
businesses that are going to continue as
an ongoing concern are not impacted
at all, but businesses where the owner
was planning an exit have to consider
that any investment in a corporate BPR
product will be liable for CGT at the full
rate. This will impact products that use
both UCIS and non-UCIS arrangements,
and as BPR is a retrospective relief
(the estate applies for the relief upon
the death of the investor) it is likely
to capture people who have already
invested in these products – highlighting
the risks of changes in legislation for all
tax efficient investment products.
SPECIAL SITUATIONS:
POWER OF ATTORNEY
Of course it is unfortunately common
for the elderly to have to cede control
of their finances to their beneficiaries
using a power of attorney.
However, power of attorney does not
normally permit gifting and often
the seven year time frame of a trust
solution is not realistic. This is another
scenario where the simplicity and speed
of a BPR product can meet the needs of
the client. Full IHT relief can be secured
within two years, but the flexibility to
make withdrawals to cover expenses
such as care costs is retained.
It’s especially pertinent if the nil rate
band will be used up by property
or other assets and there are still
significant levels of wealth to consider.
“An asset-backed investment within a BPR environment allows you to preserve and grow the value
of your client’s estate, whilst allowing them to retain ownership and control of their investment”
Edward Grant, Ingenious
BEFORE AND AFTER BPR
Converting assets into BPR qualifying
assets is one of the few options open to
clients granted power of attorney.
Transfer assets to
a BPR investment
product and
achieve IHT
exemption in
2 years while
retaining access
to the funds
£650K house uses
up nil rate band
POA prevents gifts
Ill health requires
quick solution
Regular withdrawals for expenses
(eg care costs)
