Avoid inheritance tax in two years

If you have assets that are liable to inheritance tax then it is possible to remove these assets from the 40% tax charge by taking advantage of Business Property Relief (BPR for short). 

To qualify for BPR, you have to own a business or own shares in a “unlisted” company (one that you won’t find on a main stock market), but it only has to be held for two years before it qualifies. 

This is a much shorter period than the 7 year window after making as gift, for example. 

Some companies don’t qualify, for example if the company invests in shares on a main stock market or property, or just invests in investments. It has to effectively be in business.

But even though you own shares in the business, you don’t have to run the business to qualify. 

Call us on 01793 686393 today to talk through ways of reducing the amount of inheritance tax that might be due on your estate

The advantage is that BPR only takes two years for the money to be exempt from inheritance tax, but the funds can be accessed whenever you want, unlike gifting assets or placing assets into trust. 

Business Property Relief- Key Facts

  • Business property relief has been around since the 1970s

  • It was introduced so that family owned business could continue after the death of an owner, rather than having to be sold to pay the inheritance tax bill

  • Unlisted shares (shares not on a main stock exchange) and unincorporated businesses would qualify

  • Alternative Investment Market (AIM) shares, even though listed on a stock exchange, can also qualify for Business Property Relief 

  • The company has to be a trading company, and there are a number of business activities that are excluded

  • See the HMRC website for more details on Business Property Relief. 

Get BPR without running a business

Most of us don’t own or want to run a business, so you might think taking advantage of Business Property Relief is difficult to achieve. 

However, there are investment companies that offer packaged products, and inside these sit the businesses or shares that qualify. You then invest in one of these products, and legally become a business owner, and you have an investment that should be exempt from inheritance tax after two years – all while having no responsibility to manage the business.

This would commonly be known as an Inheritance tax service.   

 

Interested in finding out more about the Inheritance Tax service? Talk to us today on 01793 686393 to start your planning now!

How the Inheritance Tax Service works...

AIM Share Portfolio

One of the other different options to avoiding inheritance tax is the “AIM”, which is is the Alternative Investment Market. This is a minor stock market that lists relatively small companies that carries a greater level of risk than an inheritance tax service. 

It is therefore possible to buy such shares individually, or as part of a portfolio through a company.  They are available as a investment product that can be wrapped up inside an ISA, so not only should they avoid inheritance tax, but also free of income tax and capital gains tax.  

As stated above these investments can also be held within an ISA, where you could transfer a pre-existing ISA, so can avoid both income tax and capital gains tax. See ISAs and Inheritance Tax for more details.

Regardless of whether you invest in a lower risk Inheritance Tax Service or AIM listed portfolio, the risks are the same, although the risk is greater with AIM shares. 

 

If investing in stocks and shares in the AIM feels too risky, then a lower risk alternative would be an Inheritance Tax Service. Call us on 01793 696393 to find out more. 

The risks

The investments may go down in value – Such investments are not guaranteed, and as such the amount invested may not be returned. This should be less likely for an Inheritance Tax Service.  

The inheritance tax exemption is not guaranteed – Tax rules may change and such investments might not work in saving inheritance tax.

Selling the investment may be difficult – The underlying assets may be difficult to sell, as they are not main stock market investments. So there could be delays.

BPR is assessed upon death – HMRC assess whether the assets qualify at the point the relief is claimed (when you die). So, they could, in theory, challenge the investments selected and whether they qualify. When using an inheritance tax service, this is unlikely.

 

Find out more about ISAs and Inheritance Tax or using an Inheritance Tax Service.

 

If you have a question about reducing inheritance tax or want advice,  or just want to have a chat about it with a UK Qualified Independent Financial Adviser, then  phone now on 01793 686393 or contact us online. 

X