BR Guide Second Edition

REPLACEMENT PROPERTY RULES (INDIVIDUAL) SCENARIO: A small amount invested with conventional goals of investment growth can also contribute to IHT planning: Jeremy, in his late 50s expects to have £80,000 cash returned to him as his successful solar EIS investments exit. EXITING SOLAR EIS INVESTMENT £80,000 Gives the prospect of meaningful growth over the next few years. Eases his concerns about reducing the IHT liability his beneficiaries will face while he considers other tax planning options. £55,000 - RETIREMENT - HOLIDAYS - HOME IMPROVEMENTS £25,000 REINVESTED INTO BR QUALIFYING ASSETS (PROVIDED HE REINVESTS THIS PORTION OF HIS EIS PROCEEDS INTO BR WITHIN 3 YEARS, SINCE THE EIS INVESTMENT ALREADY QUALIFIED FOR BR, THE NEW INVESTMENT WILL IMMEDIATELY QUALIFY FOR BR) Even if the £25,000 invested in BR qualifying assets is eventually needed to fund Jeremy’s lifestyle, the money is still accessible subject to liquidity. CASE STUDY 3 49 CASE STUDIES The new BR portfolio is 100% outside of the charge to IHT as soon as the assets are acquired. Brian 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. BRIAN IS ADVISED TO SELL THE BUSINESS* AND INVEST THE PROCEEDS INTO A PORTFOLIO OF BR QUALIFYING INVESTMENTS Brian fears his business will lose value BUSINESS VALUE £4.2 million As Brian’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 CGT 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 2019 £4,200,000 £630,000 2020 £3,570,000 £535,500 2021 £3,034,500 £455,175 2022 £2,579,324 £386,899 2023 £2,192,426 £328,864 2024 £1,863,562 OVERALL DECLINE IN VALUE £2,336,438 DECLINE OF BUSINESS VALUE (15% p.a.) SCENARIO: Brian 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 15% per year. REPLACEMENT PROPERTY RULES (CORPORATE) CASE STUDY 4 HE SEEKS HELP FROM AN ACCOUNTANT WHO REFERS HIM TO A FINANCIAL ADVISER