BR Guide Second Edition
15 THE CASE FOR BR Why Choose BR? BR and Other Estate Planning Solutions Of course, there are other estate planning solutions which can be used independently and in conjunction with BR. The use of BR could be part of an asset replacement strategy, where 2.1 BR Enterprise Investment Scheme (EIS) Trust Gifts / PETs (Potentially Exempt Transfers) Life Assurance Pensions Charitable Giving TIMEFRAME 2 years from the acquisition date of the shares* 2 years from the acquisition date of the shares* (3 years for EIS qualification) 7 years Tapers - but 7 years for full relief As soon as the policy is in place As soon as funds are inside the pension as long as annual and lifetime limits aren’t breached For lifetime gift, as soon as gift is made. For other gifts, on death as long as the gift is in the will IMPLEMENTATION AND ONGOING ADMINISTRATION Relatively simple Relatively simple Requires relatively complex legal structures Specialist advice is highly recommended Depends on age and health status - can be restrictive Depends on pension arrangements. Specialist advice is highly recommended Simple, but estate value/ will must be correct COSTS Varies, up to 2.5% initial and 1-3% ongoing AMC** Varies, average 2.5% initial and 1.5% ongoing AMC** High Low, but there will be a charge for the advice Monthly premium or lump sum - will vary depending on sum assured, age & health Varies, around 0.85% ongoing AMC + transaction costs and taxes if the pension fund buys & sells + cost of advice Varies, professional valuation of estate and ongoing will updates INVESTMENT RISK Medium to high depending on underlying assets/investment sector High Depends on how assets are invested None None Depends on how the assets are invested None LIQUIDITY Between <30 days to >3 months in normal market conditions, depending on the service Yes, subject to liquidity and implications to the tax reliefs No access, but some control depending on the legal structure None - access and control is lost Can cancel the policy, subject to costs Big tax penalties to access funds when under 55 Can rewrite will at any time POTENTIAL RATE OF RELIEF FROM IHT 50% or 100% (subject to minimum holding period) 100% (subject to minimum holding period) Can be 100%, depending on the structure (after 7 years) 100% (after 7 years) No relief - just pays the bill with sum assured Usually 100% if the deceased is under 75. For over 75s, up to 55% income tax is payable, depending on the size of pension pot IHT on estate reduced by 10% (to 36%) if 10% of estate is left to charity * However, if the company is not trading when the shares are issued, the period ends on the second anniversary of the commen- cement of the trade for BR qualification and on the third anniversary of the commencement of the trade for EIS qualification. ** Data sourced from MICAP in relation to discretionary managed portfolio services investing in BR/EIS qualifying shares assets that are liable for IHT are replaced with assets that qualify for 100% relief from IHT. However, it is most likely that BR is used in conjunction with more conventional solutions such as gifts and trusts, which are asset reduction strategies. Increasingly since the new rules announced in 2014, pensions have also been used in a way which takes into account IHT, as well as retirement income efficiency. Using multiple estate planning solutions is necessary to maximise low cost and low risk options such as gifting. Using a single strategy also runs the risk of that strategy failing and the client not achieving a reduction in the potential IHT liability. Therefore, diversifying between strategies such as gifts, trusts and BR, and diversifying between providers within these strategies, is optimal. The case studies in sections 5 and 6 of this guide provide useful examples of when and how BR can be used with other IHT planning methods. IHT SOLUTIONS COMPARISON
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