53
There is a risk on the other side of this
equation though - as long as successive
governments make promises and
subsequently break them, uncertainty
reigns and can prevent people from
taking action to mitigate their estate’s
IHT liability. This is again in favour of
BPR investment products as they are
flexible and can be changed. Those who
have made irreversible arrangements
through gifts and trusts of course would
be bound by their arrangements and
would arguably lose out as a result of
any changes or abolishment of IHT.
CONCLUSIONS AND
OUTLOOK
There will certainly be a growing need
for estate planning solutions as long
as asset prices (principally house
prices) keep rising and the nil rate band
remains at, or near to, its present level
of £325k.
The timeframes of gifts and trusts will
put a lot of potential investors off, not to
mention the fact that they will have to
make what are essentially irreversible
decisions about their money. So - as we
have highlighted throughout the report
- the speed, simplicity and flexibility of
BPR products are going to appeal to a
growing number of advisers’ clients.
However, we would expect that in most
cases BPR products are put to work
alongside other, more conventional
solutions.
The new pension changes could also
impact the BPR market. The removal
of the 55% “death tax” on pensions
that have been commenced when the
holder dies before the age of 75 makes
pensions more attractive as an estate
planning tool, and could encourage
people to retain pension funds for
longer and use other investments for
income if possible. On the other hand,
further reductions in the amounts
that can be saved in pensions will
encourage people to look for alternative
assets. How this plays out remains to
be seen, but it is another reason why
using a combination of estate planning
strategies is normally going to be the
right approach.
The challenge for advisers is
ensuring that they have a sufficient
understanding of the BPR industry
and the products within the market
to make appropriate and suitable
recommendations - with confidence
in the provider, the underlying
investments, the legal structure, and
level of liquidity. They also need to
be confident that the relief will be
achieved, that the client understands
the risks they are exposed to, that the
costs are all right for their clients, and
that the provider is genuinely putting
the money to work and not running an
avoidance scheme that will fall foul of
HMRC.
Knowing that this is a product whose
time has come, the providers are
gearing up to do more work to reach
out and help advisers. We should
expect to see more marketing (aimed
at both intermediaries and consumers),
more educational initiatives and more
transparency from the investment
managers as they work harder to
engage greater numbers of advisers.
Three potential pitfalls:
Firstly, if any product DOES fall foul
of HMRC and fails to achieve the relief,
or is accused of deliberate avoidance,
advisers will turn away - they will not
want to risk client money in solutions
that do not deliver
Secondly, if one of the major political
parties significantly raises the IHT
threshold or abolishes IHT altogether
then the potential market for BPR
products will shrink – and potentially
current investors might look to exit
Third, if HMRC were to consider BPR
products as a wholesale
commercialisation of the relief it might
tighten up the rules – forcing some
providers to go back to the drawing
board and redefine their products.
For now though, the signs are good - the
products have performed as expected
and delivered IHT relief. Although
inheritance tax makes a significant
contribution to the Treasury, it is by
no means the biggest and the largest
relief is the nil rate band, not BPR. We
think that this means it is less likely that
HMRC will scrutinise BPR in the near
future. BPR products meet a real and
pressing need for many clients, and
advisers should ensure that they are up
to date and informed about this market.
“Unlike gifts or trust
solutions, which can take
seven years to obtain relief
from IHT and can, in the
case of trusts, be complex and
expensive, a subscription
into a BPR qualifying
company or an investment
in qualifying AIM stocks
will benefit from relief from
IHT after just two years.
In addition, shareholders in
BPR qualifying companies
and AIM stocks do not lose
control of their assets as is the
case when making a gift or
placing assets in trust”
SamMcArthur, PUMA Investments
“The challenge for advisers is ensuring that they have a sufficient understanding of the BPR
industry”
