BR Guide Second Edition

51 CASE STUDIES Since the original grocery 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: Jean, 62 and in good health, owns 100% of the shares (unlisted/ unquoted) of a successful grocery 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. £410,000 EXCESS CASH* BUSINESS VALUE JEAN 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 £2,000,000 £1,590,000 CASE STUDY 5 They now have two financial planning needs: COMBINED ANNUAL INCOME £185,000 EXPENDITURE £45,000 PENSION CONTRIBUTIONS £80,000 ISA CONTRIBUTIONS £40,000 INVESTABLE INCOME £20,000 BR INVESTMENT ANNUALLY £15,000 GROWTH P.A. 4.8% AFTER 10 YEARS* £195,888 *GROSS OF FEES AND TAXES, ASSUMING THE INVESTMENT IS MADE AT THE START OF EACH YEAR PLANNING SUMMARY SCENARIO: Stephen and Nicola have just hit 60, still working in good jobs, have paid off their mortgage, have adult children, and with their pension savings and ISA portfolio in place, they have some spare capital to invest from their income for the first time. INVESTMENT GROWTH Smaller company investments that qualify for BR after two years offer solutions to both. BR Qualifying BETTER RETURNS AND SOME DIVERSIFICATION AWAY FROM THEIR MAINSTREAM PORTFOLIO START TO BUILD UP SOME ASSETS OUTSIDE OF THE CHARGE TO IHT CASE STUDY 6 The excess cash will not qualify for BR since it is not being used for trading purposes and isn’t earmarked for future identifiable business use - therefore this would be an ‘excepted asset’ and a proportion of the value of the shares wouldn’t qualify for BR. This could cost Jean’s estate £164,000 on death (£410,000 x 40% at current rates)