BR Guide FINAL 20 Feb

29 28 BR INVESTMENT OPTIONS BR INVESTMENT OPTIONS Corporate BR Qualification Flow Chart Do the shares (quoted or unquoted) give control? Have the shares been held for the minimum period of ownership? Was the company’s business carried on for gain? Was the company in the process of being wound up or liquidated? NO BR Are the shares unquoted? Do the shares qualify as replacement property or were they acquired via an earlier eligible transfer? YES NO NO YES YES NO YES Were the shares subject to a binding contract for sale at the valuation date? Does the company’s business pass the ”wholly or mainly” test? Does the company have a subsidiary which does not pass the ”wholly or mainly” test? Restrict relief to exclude the value of the subsidiary and consider... Does the company have excepted assets? YES YES NO YES YES NO NO NO BR NO NO BR YES NO BR NO Allow relief in full at the appropriate rate Restrict relief accordingly SOURCE: HMRC CORPORATE BR TRADING STRUCTURES Subsidiaries and Partnerships Business property that qualifies for 100% IHT relief includes shares in an unlisted company and a sole trader business or share in a partnership. Some managers offer services that address the issue of excess assets within a business by setting up a subsidiary company that invests surplus cash into BR qualifying investments. This means that BR and entrepreneurs’ reliefs are reinstated, but the business can still access these funds should it need to (subject to the liquidity of the underlying investments). Certain providers set up a wholly owned subsidiary for the corporate client (e.g. TIME:CTC) and the subsidiary then becomes a partner in a number of underlying LLPs. Other providers, such as Octopus, operate a structure whereby the corporate client directly becomes a partner in a single LLP. Nevertheless, if any subsidiary is not considered to be mainly trading, it would be treated in much the same way as an excepted asset. The BR would be restricted according to the market value of that investment subsidiary. Care does need to be taken where a partnership/LLP owns an interest in a trading subsidiary as, unless the partnership/LLP itself carries on a trade, no BR will be available. This is because the holding of the shares in the trading subsidiary is by itself an investment activity which does not qualify for the relief. Innovation in BR AIM shares feature commonly in mainstream IHT portfolios. The advantages of investing on AIM are ISA acceptance (available since 2013) and the higher levels of liquidity, scrutiny and corporate governance that would normally be associated with a listing. But, another potential outcome of listing, volatility, has been addressed by TIME Investments, with their ‘smart passive’ AIM BR service. They have created software which screens all prospective BR qualifying investments against financial, commercial and performance criteria. A number of quantitative metrics allow only those with a belowmarket average volatility to be selected, aiming to remove market sentiment from the equation. Another recent development has been the use of insurance to cover the costs of the IHT bill if the policyholder dies within the first two years of holding the potentially BR qualifying asset. A small number of services also offer insurance that pays out if, on the day the investor dies, the value of their portfolio is less than what was invested. However, these types of guarantees come at a cost. (In addition, perhaps they could be implemented by an adviser at a lower cost than when they are bundled with the estate planning service). It’s also important to note that IHT BR insurance options may have exclusions and termination/renewal dates, and that no policy will insure against relief not being granted by HMRC. NO BR YES NO