BR report 2018

8 9 HIGHLIGHTS FROM OUR RESEARCH KEY FINDINGS EXECUTIVE SUMMARY A MAINSTAY OF UK BUSINESSES With IHT receipts approaching the £5bn mark, estate planning tools have become a hot topic. Business Relief (BR) is one of the lesser-known estate planning solutions, but its use is on the rise. In 2014, over £2bn was claimed in IHT exemptions via BR. KEY THEMES THAT THIS REPORT FOCUSES ON INCLUDE: BR is providing much needed support for UK businesses BR’s injection of capital into UK businesses has myriad benefits for UK PLC. Our adviser survey indicates that BR is becoming more popular with advisers, which can only have positive consequences for fledgeling UK businesses. With banks still providing limited capital to small businesses, BR acts as one of the investment cornerstones of the UK economy. BR is a long term investment, and is being held for far longer than two years Although BR only requires two years of asset ownership to qualify for IHT exemption, investors are required to hold the assets until death. This means that BR is providing long term investment into growing UK businesses, a much needed source of patient capital. Cost of BR The value of claims for BR has been rising at roughly the same percentage as the increase in Her Majesty’s Treasury’s IHT receipts. And the amount of IHT relief claimed through other methods such as the passing of assets between spouses swamps BR’s contribution. IHT is being reviewed, but BR is unlikely to feature Philip Hammond called on the Office for Tax Simplification (OTS) to conduct a review of IHT in January 2018. However, BR is unlikely feature, as it is one of the more simple mechanisms within the IHT sphere. In this report, we look at the political landscape that surrounds BR and IHT, as well as how new IHT updates, such as the residence nil rate band, have influenced the use of BR. The significance of AIM in BR Around a third of AIM securities are BR qualifying, and the popularity of AIM BR options has grown since their eligibility for inclusion within an ISA since 2013. AIM BR products, in general, offer easy access to high growth potential. However, they also tend to be more volatile than unlisted BR products. The inclusion of BR qualifying assets in the AIM market makes this secondary market far more attractive for investors, and encourages them to weather volatility storms due to the incentive of the tax relief available. A vital estate planning solution in the context of the UK’s ageing population In our considerations for investment section, we look at the UK’s ageing population - a captive market for estate planning. BR has notable advantages when advising later life clients. One of which is the flexibility of being able to liquidate BR investments . This is imperative if investors require access to capital for unexpected eventualities - such as care fees which are spiralling upwards as people are living longer. In contrast, gifting or setting up a trust often takes the client’s capital outside of their estate, at a time when they may need to access their money the most. However, liquidity among BR offerings is not necessarily guaranteed. Some offers may take considerably longer than others for the capital to be released. Insurance Options Two BR investment providers and two financial advisers discuss the pros and cons of bundling insurance cover with BR offers. This is an area that is developing in the BR market. The primary types of cover available tend to be broken into two categories. Investment - where the insurance protects against poor performance of the BR investment; and mortality - where there is protection against death within the two year qualifying period for IHT exemption. Latest Compliance Considerations The report looks at legal precedents that have been set in the BR space, as well as the compliance considerations that advisers should be aware of when recommending BR to clients. 420,000 FAMILY SMEs will go through an ownership transfer IN THE NEXT FIVE YEARS In our adviser survey, THE MOST POPULAR AGE RANGE to recommend BR was 75-85 Over 50% of open BR offers are AIM LISTED IN 2016-17 IHT receipts were £4.84 bn - 4% GREATER than the previous year 80% OF ADVISERS see their use of BR INCREASING over the next two years There are approximately 17,000 medium and large UK FAMILY BUSINESSES The average BR offer diversifies across 14 DIFFERENT UNDERLYING COMPANIES 2016/17 AVG WEEKLY COST of a room in a UK NURSING HOME: £841 37% OF OVER 55s still haven’t made A WILL There are over 430,000 PROPERTIES worth over £1m IN LONDON ONE IN THREE PEOPLE BORN TODAY are set to live to 100 THE OLDEST PERSON was 98 THE YOUNGEST was 29 to be advised on BR in our survey