We recently spoke about Inheritance Tax (IHT) at a STEP seminar where we were joined by a couple of partners from Maclay Murray Spens, discussing some interesting dos and dont’s of estate planning
We decided to discuss the subject of Inheritance Tax friendly investments (IHT), i.e. those that qualify for Business Property Relief (BPR).
For those unfamiliar with STEP it is the worldwide professional association for those advising families across generations.
The diploma is something you will find good quality Private Client law firms in particular have their practitioners achieve.
At Murphy Wealth Nick has the STEP Certificate for Financial Services- Trusts and Estate Planning (he does enjoy a good exam).
We have looked at BPR qualifying investments in past blogs, but it worth refreshing as is a subject that comes up again and again.
The main benefit of this type of investment, usually an Alternative Investment Market (AIM) portfolio, is the 2-year qualifying period before it is out-with your estate for IHT purposes
Compared to the usual methods involving trusts or gifting, which have a 7-year clock and could involve giving up your right to that asset in a lot of cases, it is quite an attractive option.
It is fair to say that in discussing this subject at the presentation, there were some reservations in the room as a result of past experience, particularly from some of the lawyers.
I was keen to highlight that it is our job to assess not only the suitability of the client for this type of investment, but also to research the market and carry out extensive due diligence on the solutions we select.
There are a number of very successful investment managers in the AIM space providing good returns and offering diversification away from the main investment markets.
While the benefits are clear from an IHT perspective, we would always recommend not letting the tax tail wag the investment dog, thats how bad decisions are made.
If it is an unsuitable investment then the tax benefits are irrelevant.
I always find it useful to give a couple of practical examples of where these might be suitable.
One that we have mentioned in the past is investing your ISA into an AIM portfolio, this has the combined benefit of taking it out of your estate within 2 years while allowing continued access should it be required.
Another that could be considered is someone who is the Power of Attorney (see last weeks guest blog) for an elderly relative.
Once again the funds can be taken out of the estate after 2 years invested, but can still be used to pay for nursing home fees, etc.
What we cannot stress enough is that good quality advice in this area is absolutely crucial to make sure that the correct investments solutions are chosen.
This is a relatively complex area of financial services where experience and knowledge is essential.
There are many more options to consider in this area, so if you would like to discuss any of these in more detail please contact me here.
This email is not intended as advice as should not be treated as such.