BR Guide FINAL 20 Feb

43 CASE STUDIES Since the original antiques business is BR qualifying, the new assets immediately qualify for BR and her shares in the company qualify in full for BR. When she retires, this investment could also continue to pay her dividends to supplement her pension. SCENARIO: Suzie, 60 and in good health, owns 100% of the shares (unlisted/ unquoted) of a successful antiques shop that has been in her family for generations. EXCESS CASH IN TRADING BUSINESS *Derived from the sale of commercial premises that the business no longer uses. (The building was sold without a capital gain, so no CGT is payable.) This cash is not required for acquiring stock or to meet the running costs of the business and there are no plans to use it for any kind of future expansion or other business purpose. £350,000 EXCESS CASH* BUSINESS VALUE SUZIE USES A CORPORATE BR SERVICE TO PUT IN PLACE A STRUCTURE TO KEEP THE CASH WITHIN THE BUSINESS BUT FACILITATE TAX-FREE ACCESS TO IT FOR INVESTMENT PURPOSES THE BR SERVICE INVESTS THE EXCESS CASH IN ASSET BACKED, BR QUALIFYING, UNCORRELATED TRADING ACTIVITIES The excess cash will not qualify for BR simply because it is held within the company — there would be a proportionate clawback of BR relief and IHT of £140,000 due from Suzie’s estate on her death. £2,000,000 £1,650,000 The new BR portfolio is 100% IHT exempt as soon as the assets are acquired. Alan can exit his business and retire without sacrificing the IHT relief he had earned, and still expect some growth in this part of his estate. HE SEEKS HELP FROM AN ACCOUNTANT WHO REFERS HIM TO A FINANCIAL ADVISER ALAN IS ADVISED TO SELL THE BUSINESS* AND INVEST THE PROCEEDS INTO A PORTFOLIO OF BR QUALIFYING INVESTMENTS Alan fears his business will lose value BUSINESS VALUE £3.5 million As Alan’s business already qualified for BR, the replacement property rule applies and therefore he just needs to ensure that the reinvestment happens within three years of the original sale. *The potential capital gains tax on the sale of the business would need to be considered but is not considered in this example which focuses on IHT and BR. CUMULATIVE LOSS Business Value 2017 £3,500,000 £700,000 2018 £2,800,000 £560,000 2019 £2,240,000 £448,000 2020 £1,792,000 £358,400 2021 £1,433,600 £286,720 2022 £1,146,880 £229,376 OVERALL DECLINE IN VALUE £2,581,776 DECLINE OF BUSINESS VALUE (20% p.a.) SCENARIO: Alan has owned a small business for many years and would like to retire, but is reluctant to do so as he sees the business as his children’s inheritance and fears losing the IHT relief in relation to the business. However, he can see that as he puts less time into the business, it is losing value, as much as 20% per year. REPLACEMENT PROPERTY RULES (CORPORATE) CASE STUDY 2 BR in action CASE STUDY 1