BR Guide FINAL 20 Feb

26 BR INVESTMENT OPTIONS AIM DISCRETIONARY ISA PORTFOLIO AIM shares became ISA eligible in August 2013, and being able to place BR qualifying investments within the nation’s most popular and accessible tax efficient wrapper is clearly very attractive, making the investment essentially income, capital gains and IHT free. Since this change, increased inflows into AIM funds and BR products have been reported, but nobody should be under any illusion that AIM shares are comparable with the traditional shares held in a stocks and shares ISA. Great care needs to be taken to ensure that clients understand the difference, especially when investing as part of an estate planning strategy; AIM is the junior market and listing there is not the same as listing on the main market, and does not confer the same status, although the higher levels of scrutiny and corporate governance that would normally be associated with a listing can apply. Corporate BR Solutions for Trading Businesses The original intention of BR was to protect small businesses from IHT and ensure that they could be handed on to the next generation intact. Of course, this is still the case today and for many business owners their business offers the perfect shelter from IHT. Most small businesses are IHT exempt because they qualify in full for BR, subject to the qualifying criteria and the cash and assets held within the business. Nevertheless, excess funds which are not held for an identifiable future use in the business could be treated as exempted assets and excluded from the relief. The exit option through BR for business owners looking to sell, but keen to retain IHT relief, is very attractive, particularly as it allows the owner to retire rather than continuing the business for much longer with the possibility that the value of the business could decline. In this instance, the business could be sold and, provided the proceeds are reinvested in BR qualifying assets within three years, none of the IHT relief is lost. Corporate BR investments should be good, new, incremental business for advisers, as they don’t cannibalise anything from existing business. And if advisers are likely to continue to advise the client’s beneficiaries, they have a vested interest in preserving as much of the estate as possible. BR qualifying investment solutions in this scenario have been around for some time; some corporate BR solutions have been in place for over 20 years. STEPHEN HERRING HEAD OF TAXATION AT THE INSTITUTE OF DIRECTORS For accountants in practice, the future of their clients’ businesses is invariably driven by the ability of the director-shareholders to change their businesses successfully in response to economic changes, whether these are in consumer markets, the supply chain, operating costs or financial costs. Taxation is invariably one of the most important financial costs. Some taxes operate as a supplement to other costs such as payroll, transport costs or business premises whilst some taxes can be poorly connected, or indeed, unconnected to the businesses operations and its future prospects. The inheritance tax liability which arises upon the death of a shareholder or the owner of an unincorporated business is often unforeseen and is too often unplanned for from the taxation perspective. It would be very dangerous for a business owner or its advisers to simply assume that business relief will remove the liability to inheritance tax on the owner’s death. Inheritance tax, the valuation concepts which underpin it and the reliefs provided are complex areas. Even a business which is clearly a trading business which ought to qualify for BR might have fallen foul of one of its complex conditions or might include assets such as surplus commercial property assets which do not qualify for relief. Special situations often arise where an entrepreneur is contemplating the sale of their business and, understandably, wants to consider the interface with their potential inheritance tax liabilities. These will often include whether there are replacement assets or businesses which might protect the business relief for which they currently qualify and whether these investments would be consistent with their overarching investment and financial goals. Such analyses invariably require the client’s accountants, lawyers and financial advisers to work closely together to ensure that the client is made aware of the opportunities and potential issues before making their decision. Most importantly, it is not about a product sale but about providing the pros and cons of the alternative investment avenues. It is too easy for tax advisers to focus on the tax liabilities on the business profits on an annual basis and to leave inheritance tax planning to a later date because of the sensitive issues about inheritance and business continuation which often arise, but tax advisers ought to ‘bite the bullet’ and raise these issues, including capital taxation, before the options have been limited by an unforeseen death. It would be very dangerous for a business owner or its advisers to simply assume that BR will remove the liability to inheritance tax on the owner’s death. BR IN A CORPORATE ENVIRONMENT FROM AN ACCOUNTANT’S PERSPECTIVE AND THE INTERSECTION OF ADVICE FOR BUSINESS OWNERS Thought Leadership