BR Report 2019

48 49 Does the OTS review of IHT make you nervous about changes to BR, or BR’s future? CP: One of the best things you can do for due diligence is to meet with the investment managers - those who are actually making the investment decisions. They have different approaches - some don’t want to get the attention of HMRC by trying to do something outside the norm, while others are less concerned. For example this year, one provider issued a rights issue allowing investors to add to their BR position at their original investment date. So if they had been invested for two years or more already, they would immediately qualify for BR on their additional shares. Whether or not this will attract a challenge from HMRC is unclear as these things are subjective. So, as I’ve said, we just have to identify and communicate the risks. KG: I agree. I can’t influence what the Treasury is going to say or do and until anything happens, I just have to advise based on the current legislation. I’m quite relaxed about it and it will be what it will be and we will react to it as we need to. MM: You can only work on what is current in terms of legislation, otherwise we would never do anything. And tax legislation is rarely retrospective so we keep an eye on reports and news but just make sure we are working to the latest rules. Have you noticed any increase in the impact of the residence nil rate band on estate planning and your use of BR in the last year? MM: If we have clients with an estate worth over £2 million, we may use BR to make an investment exempt from inheritance tax and then roll it into a trust after two years. Reducing the estate to under £2 million lets the investor then reclaim their RNRB. On the other side of the coin, the RNRB has reduced the need for some planning in estates under the value of £1 million where there is a married couple with children, due to the increased allowance brought by the RNRB. So while there has been an increase in usage of BR in some cases, there has also been a reduction in others. KG: A lot of our clients are so wealthy that they don’t get any benefit from the RNRB as they’re well above the £2 million threshold. So we’re still looking for the financial planning techniques to mitigate their IHT liabilities. CP: Because our due diligence company is relatively new, it’s hard for me to say what the impact has been as I don’t have enough years to compare the last couple against. But there must be some element of an impact, particularly in the south with the higher asset prices there. Are there any particular sectors you favour for BR investments at the moment? If so, why? KG: I usually go for capital preservation BR products because I prefer a capital gains tax focus, rather than a dividend or income tax mitigation play as it’s more tax efficient. Then I’m usually looking at renewables and asset-backed lending. MM: We don’t have particular preferences, but we do mix and match providers so that we have a good spread of underlying assets. CP: I look at the underlying investments in as much detail as I can when putting together complementary schemes. But, because most schemes have such a narrow focus, despite what they say on the tin, any new investment sector is welcome as we don’t have enough as it is. What are your views on diversification across BR providers? CP: I always provide very heavily researched portfolio solutions (typically across 5 different offerings) when Moderator: Lisa Best, Intelligent Partnership Market research / Adviser roundtable “If we have clients with an estate worth over £2 million, we may use BR to make an investment exempt from inheritance tax and then roll it into a trust after two years. Reducing the estate to under £2 million lets the investor then reclaim their RNRB. On the other side of the coin, the RNRB has reduced the need for some planning in estates under the value of £1 million, where there is a married couple with children, due to the increased allowance brought by the RNRB. So while there has been an increase in usage of BR in some cases, there has also been a reduction in others.” — MARCUS MAISEY, KDW FINANCIAL PLANNING “I can’t influence what the Treasury is going to say or do and until anything happens I just have to advise based on the current legislation. I’m quite relaxed about it and it will be what it will be and we will react to it as we need to.” — KEVIN GILLIBRAND, FRASER WEALTH MANAGEMENT working with BR, if the investment amount allows. But you need to do more than pick large schemes which might have largely the same underlying assets. To really diversify you need to consider those schemes with complementary investments, including some of the mid-sized schemes and weight them accordingly. The important factor to consider here is liquidity. If redemption requests necessitate the forced sale of assets, there are a multitude of things to consider such as the use of conservative NAVs, leverage and liquidity provisions. KG: For me it depends on how much I’m looking to invest. If it’s £50,000 or below, I’d just stick with one BR manager. But if I’m building a larger portfolio, I’ll probably do it in £50,000 chunks. Don’t forget, this is going to be part of a client’s overall wealth management strategy and I’ve usually already built a very diversified portfolio for a client. The BR investment is often an additional diversifier within that structure. MM: Like Kevin, if we had a BR portfolio of £200,000, we would probably look to use four providers with a £50,000 investment going to each one. If you choose the right providers who offer diversification across sectors within their own products and overall, this is sufficient. The other thing, as Chris mentioned, is that you need to take liquidity into account; if you need to redeem the money, it’s easier to redeem smaller chunks because smaller amounts are likely to be available more quickly from several individual providers than if you have a large amount with one provider.