BR Guide FINAL 20 Feb

34 BR INVESTMENT OPTIONS 35 BR INVESTMENT OPTIONS Suitability Considerations If individuals are looking for income to maintain their lifestyle, to continue growing their funds or just to stave off the corrosive effects of inflation on their capital, and they are sophisticated enough to understand the investment, there is a case for using BR products. The advice relies on two important elements: • Ensuring that the client fully understands the risks involved. • Ensuring that the tax tail, in this case IHT exemption, does not wag the investment dog. In short, the client must be suitable for the investment itself. Advisers have to assess if, for the clients they have in mind, the advantages of BR outweigh the additional investment risk that is associated with investing in BR qualifying assets. In most cases BR should not be used exclusively. Gifting should be maximised where possible, and a mixed strategy would make sense for most estates. Nevertheless, there are a few scenarios where BR is probably going to be the only possible solution. Poor health, excess capital within a business and power of attorney scenarios are three examples where BR investment products look like a better bet than traditional estate planning tools. What follows are some bullet points designed as memory joggers for advisers looking at suitability factors in relation to a possible recommendation of BR. 3.3 Traits of the investor Investors need to have a level of sophistication to understand the underlying investments, but greater understanding may give them more confidence about the risk they are exposed to. Key client suitability considerations • Ts&Cs • AGE OF CLIENT • OTHER TAX-ADVANTAGED SCHEMES • PORTFOLIO MAKE-UP • TIME HORIZON • TAXATION BENEFITS • ATTITUDE TO RISK • CAPACITY FOR LOSS • KNOWLEDGE & EXPERIENCE Attitude to risk Sophistication Capacity for loss Suitability considerations: Memory Joggers Is there an LPA in place? Does a potential conflict of interest exist? Do the attorneys have the necessary powers to effectively delegate to a discretionary fund manager? Age of the client and beneficiaries? Are there concerns about the client’s health and limited life expectations? Are the beneficiaries old enough for immediate access to any inheritance? Do the clients have any vulnerability issues? Do their age, physical or mental health, disability, poor literacy, caring responsibilities or the effects of life- changing events require additional levels of care and consideration? How much does the client require the tax mitigation? Has the client made a will and if so, is it drafted to take advantage of the RNRB? Have gifts, NRB and RNRB already been used? Are other options providing the desired level of IHT mitigation? Are speed of qualification and flexibility factors? For corporate BR, are there excepted assets in the business? How balanced is the existing client portfolio? Investors should not be overexposed to high risk investments, illiquid assets or unquoted securities. The risks and disadvantages of BR qualifying shares should be more than offset by the rest of the portfolio. What family circumstances need to be considered? Is the client married or in a civil partnership? (IHT is not payable on any inheritance that a person leaves to his or her surviving spouse or civil partner and gifts between a husband and wife or civil partners are also exempt from IHT (assuming both spouses or civil partners are UK domiciled)). Does the client have direct descendants (stepchildren, adopted or foster children, grandchildren)? Does the client require access to their funds and if so, how urgently? Every IHT planning solution will involve some degree of illiquidity, so it is important to ensure that there are sufficient liquid funds available to meet withdrawal needs. BR may be a part of this strategy in a balanced portfolio with a range of liquid and not-so-liquid assets. What is the attitude to risk and capacity/ tolerance for loss? Does the investor (or all of the company stakeholders) understand the risks, including the potential for the loss of the capital allocated to BR – do they have previous experience of investing or business? Would loss of their investment have a materially detrimental effect on the client’s lifestyle, business (in the case of corporate BR) and/or how much they want to leave to their beneficiaries? SOURCE: TOMORROW’S WORLD, THE FUTURE OF AGEING IN THE UK, ILC *7 in every 10 women, young adults aged 18-34 and people living alone +1 million people AGED 65 AND WITHOUT CHILDREN BY 2030 2/3 of people* HAVE EXPERIENCED A MENTAL HEALTH PROBLEM Growing Vulnerability