BR Guide Second Edition

17 16 THE CASE FOR BR THE CASE FOR BR Discretionary trusts BR-qualifying shares that have been held for two years and then transferred into a discretionary trust do not incur the standard 20% lifetime transfer IHT charge. If holdover relief is utilised, no CGT is payable. The shares still attract IHT relief at 100%, even if the settlor doesn’t survive seven years. But, if the shares are subsequently sold by the Trustees and the settlor dies within seven years, the original transfer into the discretionary trust will become chargeable. Gifting If a gift is in the form of a BR investment that has been held for at least two years by the donor, it may be given to a beneficiary during the donor’s lifetime and the donor doesn’t have to live at least seven years to be 100% IHT free (as per the rules for PETs). But, the recipient of the gift must hold the BR qualifying assets until the earliest of the donor’s death or seven years to benefit from 100% IHT mitigation. 2.3 2.2 Benefits and Risks Business Relief with Gifts and Trusts Speed Unlike gifts, BR qualifying investments are 100% outside of the charge to IHT after a two-year holding period Access Subject to liquidity, BR investors can exit their investment at any time to access their funds Growth The estate planning services offered by investment managers target investment growth typically from 2% to 7% p.a. Simplicity As an investment, there is no medical underwriting or complex legal structures required. This means that BR is also an option where an LPA is in place: attorneys need the approval of the Court of Protection to make gifts, but as BR is simply an investment, attorneys can use BR as an estate planning strategy Replacement Business Property In addition, BR qualifying assets benefit from the replacement business property rules (also known as rollover relief), so that if an investor disposes of BR qualifying assets after the minimum two-year holding period, there is broadly a three-year time-frame to reinvest the proceeds and retain the relief, without having to restart the two-year qualifying period. There is also no medical underwriting as, for example, is required to take out a life assurance policy, and costly legal structures are not required, unlike conventional gifts and trusts. However, the investment needs to be actually made (it cannot be in contemplation). KEY BENEFITS Cash is a buffer against the uncertainties of life. But investors tend not to appreciate that cash is also a danger. One problem is that it can get eaten up by inflation. If you had put £100 in the bank in January 2009, it would - taking consumer inflation into account - now be worth around £79 in real terms. JUSTIN URQUHART STEWART, SEVEN INVESTMENT MANAGEMENT, JUNE 2019