Business Relief has been available since tax legislation in 1976. Once the qualifying assets have been owned for two years they can be passed on free from inheritance tax on the death of the asset owner.
The assets covered could be farmland, forestry, trading business and certain AIM quoted businesses. Using Business Relief allows assets to benefit from the relief faster than using trusts or gifts and, most importantly, it can be done without the owner losing control over the capital as the transaction is carried out in their name. They retain the benefit of the asset, with the intention of passing it on, but the person receiving the asset after death is not faced with an inheritance bill if the relief conditions are met.
However, this type of tax relief is complex and specialist. There are a range of limits and exemptions and different stages so it is vital that someone thinking of using these reliefs gets proper professional advice. Advisers must encourage clients to make the time to understand their own financial circumstances and engage sufficiently to ensure they can do their job effectively and provide suitable advice.
For an adviser, it is essential to properly understand the circumstances of your client. For example, a client may wish to leave assets to their family and friends or to charity but an adviser must also ensure their client’s financial needs in this world are met too and the advice they give should take into account how the client could meet any changes in their future circumstances.
It’s not unreasonable that a client may need extra medical care or to adapt their home in the future even if this is not evident at the time of the advice. The adviser should reasonably assess if it is the best option to commit capital in such a way that the decision is difficult to reverse at a later date if they do require the benefit of funds that they had previously planned not to access.
Suitable advice should always take a client’s full circumstances into account and try to take a longerterm view, pre-empting some of the needs the client will have in the future. Of course, the adviser can’t know in advance what those specific changes in circumstances might be, but they ought reasonably to factor in changes such as if the client were to be unwell or retire differently to how they expect at the time of the advice. Consideration must also be given to whether or not they have other financial resources they can call on separate to the assets being considered for IHT relief purposes.
It’s important to bear in mind that IHT relief is a specialist area that is not suitable for everyone, which is where the skills of a qualified and suitable adviser can add value and give peace of mind.
This piece has been written by Desmond FitzGerald, Senior Policy Adviser at PIMFA as part of the Business Relief Report 2019. For the full report go to https://intelligent-partnership.com/br-industry-report-2019/