Recent analysis into the BPR investment industry, carried out by Intelligent Partnership for the 2016/17 BPR Industry Report, has revealed that the number of fund managers offering BPR qualifying investments has continued to grow. There are now 34 open offers in the market, and just under a quarter of these launched in the last 12 months, in response to demand due to the increasing prevalence of IHT liabilities.
Business Property Relief is a statutory relief that provides 100% relief from Inheritance Tax for investors who are holding shares in qualifying businesses (and have done so for at least two years) upon their death. A number of investment managers offer consumers investment solutions that benefit from BPR.
In contrast to previous offers, the latest offers to come to market have more focus on providing growth in addition to capital preservation. Intelligent Partnership speculate that this change is down to an increasing number of clients who want to undertake some estate planning without either sacrificing returns, or gifting away their assets, as clients and their advisers try to plan for extended retirements and longer lives.
The annual returns the investments target are on the rise and the average target annual return is currently 4.26% (compared to 3.97% historically). In addition, the majority of the new offers are project based: the investment provides capital for large scale construction projects such as renewable energy installations or infrastructure projects. These investments tend to have low levels of diversification and may only invest in one or two projects, but as they are “asset rich” they are less risky due to their high liquidation value, which aims to satisfy the capital preservation mandate of these offers even in worst case scenarios.
Guy Tolhurst, Managing Director of Intelligent Partnership, commented:
“We know from our research that this is an area that advisers are increasingly interested in, and with so many new offers launching, there is more work for them to do in order to review the whole-of-market. However, we see this as a positive: hopefully the new entrants will mean increased choice, and competition will drive down fees for clients.”
Other popular sectors for BPR qualifying investments include renewable energy, which has five open investments at the moment and unlike EIS and VCTs, BPR qualifying investments can still include schemes which benefit from Feed-in-Tariffs or Renewable Obligation Certificates. Financial Services is another common sector, with investments typically being made into firms who extend loans to low risk, creditworthy borrowers such as asset-backed property developers.
Neil Cole of UBS Wealth Management, who took part in an adviser roundtable on BPR hosted by Intelligent partnership commented: “There is a good range [of products], starting from products targeting 2-2.5%, but for clients who are prepared to take on a bit more risk that can go as high 5-7%. I’m happy with the range of products in the market.”