The following passage is taken from FT Adviser where Intelligent Partnership’s research is highlighted, click here to read the full article.
Business property relief
By contrast, investing in companies that qualify for business property relief (BPR) can be an efficient way to mitigate IHT. BPR works by providing shareholders in qualifying companies with 100 per cent IHT relief upon death.
It takes just two years for BPR-qualifying shares to become exempt from IHT instead of seven, as is the case under gifting and trusts, and the control over assets stays firmly with the investor during their lifetime.
Research also shows that BPR is proving to be an increasingly popular method for mitigating IHT, with research from Intelligent Partnership revealing that 60 per cent of advisers plan to increase their use of BPR over the next two years, while IHT planning is listed as advisers’ top reason for recommending BPR products.
Once a client and adviser have established whether BPR is the best option for IHT planning, further consideration must also be given to the appropriate way to access BPR-qualifying companies, again taking time to consider the positives and negatives of each option.
BPR used only to be accessible through unquoted companies, but has since been extended to include firms quoted on AIM, formerly the Alternative Investment Market, and companies that qualify for the Enterprise Investment Scheme (EIS).
In order to become eligible for the tax relief, a company must also be considered a trading business, meaning the majority of its activities must not involve wholly or mainly dealing in securities, stocks and shares. Similarly, companies that are also involved in land or buildings or the making and holding of investments, will not qualify for BPR.
AIM investing can be a flexible method for accessing BPR and mitigating IHT, particularly in light of recent changes allowing small company shares listed on AIM to be held within an Isa wrapper. For the first time, this will protect an Isa from inheritance tax upon death, a crucial benefit given the continuing popularity of the tax wrapper.