BR Guide FINAL 20 Feb

17 16 TITLE OF SECTION THE CASE FOR BR The Case for BR BR EIS Trust Gifts / PETs (Potentially Exempt Transfers) Life Assurance Pensions Charitable Giving TIMEFRAME 2 years from share ownership 2 years from share ownership (3 years for EIS qualification) 7 years Tapers - but 7 years for full relief As soon as the policy is in place As soon as funds are inside the pension as long as annual and lifetime limits aren’t breached As soon as the will is in place IMPLEMENTATION AND ONGOING ADMINISTRATION Simple Simple Requires relatively complex legal structures Specialist advice is highly recommended Depends on age and health status - can be restrictive Depends on pension arrangements. Specialist advice is highly recommended Simple, but estate value/will must be correct COSTS Varies, up to 2.5% initial and 1-3% p.a. after beating a hurdle Varies, up to 2.5% initial and 1.5% ongoing AMC High Low, but there will be a charge for the advice Monthly premium or lump sum - will vary depending on sum assured, age & health Varies, around 0.85% ongoing AMC + transaction costs and taxes if the pension fund buys & sells + cost of advice Varies, professional valuation of estate and ongoing will updates INVESTMENT RISK Medium to high Medium to high Depends on how assets are invested None None Depends on how the assets are invested None FLEXIBILITY Between <30 days to >3 months, depending upon the service Yes, subject to liquidity and implications to the tax reliefs No access, but some control depending on the legal structure None - access and control is lost Can cancel the policy, subject to costs Big tax penalties to access funds when under 55 Can rewrite will at any time MITIGATION 50% or 100% 100% Can be 100%, depending upon the structure (after 7 years) 100% (after 7 years) No mitigation - just pays the bill with sum assured Usually 100% if the deceased is under 75. For over 75s, up to 55% tax is payable, depending on the size of pension pot IHT on estate reduced by 10% (to 36%) if 10% of estate is left to charity BR and Other Estate Planning Solutions Of course, there are other estate planning solutions which can be used independently and in conjunction with BR. The use of BR could be part of an asset replacement strategy, where assets that are liable for IHT are replaced with assets that qualify for 100% relief from IHT. However, it is most likely that BR is used in conjunction with more conventional solutions such as gifts and trusts, which are asset reduction strategies. Increasingly since the new rules announced in 2014, pensions have also been used in a way which takes into account IHT, as well as retirement income efficiency. Using multiple estate planning solutions is necessary to maximise low cost and low risk options such as gifting. Using a single strategy also runs the risk of that strategy failing and the client not achieving a reduction in the potential IHT liability. Therefore, diversifying between strategies such as gifts, trusts and BR, and diversifying between providers within these strategies, is optimal. The case studies in sections 5 and 6 of this guide provide useful examples of when and how BR can be used with other IHT planning methods. 2.1 IHT solutions comparison