BR Guide FINAL 20 Feb

23 22 BR INVESTMENT OPTIONS BR INVESTMENT OPTIONS DIY DISCRETIONARY MANAGEMENT PORTFOLIO COST TIME & RESOURCE RISK varies* POTENTIAL GROWTH varies* varies depending on the underlying trades and level of gearing INVESTING IN BR ASSESSMENT VERY LOW LOW HIGH VERY HIGH However, the exact composition of the underlying portfolio may differ from investor to investor, depending upon the timing of their investment: different qualifying opportunities may have been available to an earlier investor than would be available today, for example. In theory, it is possible to self-select BR qualifying investment opportunities. In practice, this activity would require a lot of time and effort on the part of the investor or adviser and some experience of investment analysis and portfolio construction. This means being able to identify BR qualifying companies, pick stocks that keep up with inflation (and hopefully do a little better than that), successfully diversify a portfolio at reasonable cost and monitor the activities of the investee, with the influence to ensure it continues to operate in their interests and not take steps that would compromise their BR status (or indeed dilute their holding). Any individual investor would need to exercise extreme caution if choosing to take on these challenges themselves. In fact, they would be well- advised to seek out professional management. For most people, the quickest, simplest and easiest way to access BR will be to invest in a product that has been specifically designed to help mitigate IHT. Discretionary Investment Management Structure SPV Holding & Co Unlisted Shares AIM Shares Investor has beneficial ownership of Investing in other BR qualifying assets SOURCE: INTELLIGENT PARTNERSHIP UNREGULATED COLLECTIVE INVESTMENT SCHEME (UCIS) A UCIS is a collective investment where investors’ funds are pooled and invested in unregulated assets such as property or unquoted companies. Estate planning services that utilise BR are typically not collective investments, and therefore they are not UCIS. This is because the client retains beneficial ownership of the underlying shares or assets on an individual basis. There are a small number of services that are structured as UCIS and therefore they are subject to tighter rules around their distribution - they can only be promoted to sophisticated and HNW investors. As always, the best policy is to ask the manager if there is any doubt over the structure. SINGLE COMPANY It is, of course, possible to invest into a single BR qualifying company. This might be an option for an investor with close ties with a particular company and who therefore has very clear insights into its activities and prospects for continued operation. However, the lack of diversification across companies and sectors does present greater risk than investment across a portfolio with multiple BR qualifying assets. EIS & SEIS The Enterprise Investment Scheme (EIS) is a long-standing government initiative to encourage investment into small and medium- sized businesses. EIS qualifying investments will generally qualify for BR because the qualifying trades for EIS purposes are very similar to those which qualify for BR. However, to be eligible for the generous EIS tax reliefs, including 30% income tax relief, 100% CGT relief, CGT deferral relief and loss relief, there are additional qualification criteria relating to the age and number of employees of an investee company. There are also caps on the amount of capital that can be raised using venture capital schemes. EIS and BR are sometimes used in combination - if clients have surplus investable assets, an EIS investment may be used to maximise the income tax relief, or defer tax on gains elsewhere, and the remainder is placed into a BR product for the IHT mitigation. Of course, EIS and Seed Enterprise Investment Scheme (SEIS) (similar rules to EIS but focused on younger companies) bring additional tax benefits, but they are usually riskier investments, with lower levels of liquidity and higher levels of fees and charges. So, if the objective is IHT relief while retaining access to the funds and the risk appetite is lower, then BR should be preferred over EIS or SEIS. More information on the Enterprise Investment Scheme can be found in Intelligent Partnership’s annual EIS Industry Report. Listed (AIM) DISCRETIONARY PORTFOLIO Due to the requirement for the underlying investments to be held directly in the investor’s own name, holding AIM shares in a conventional collective investment fund structure would not achieve BR relief, as this creates an extra layer between the investor and the company. Instead, those looking for BR benefits must either take the “do it yourself” route (we have already discussed the significant disadvantages of the DIY route), or use an AIM portfolio service offered by a specialist wealth management firm which invests in the shares of companies quoted on AIM that meet the criteria for BR qualification. INVESTOR MANAGER * depending on skill & strategy