Using Business Property Relief (BPR) to help provide relief from inheritance tax

It allows certain investments to be left to your beneficiaries free from inheritance tax.

BPR was introduced in the 1976 Finance Act.  It was created to allow small businesses to be passed down through generations without facing a large inheritance tax bill.

Over time, successive governments have recognised that tax breaks are the best way to encourage people to invest in trading businesses, regardless of whether they run them themselves. These incentives can compensate for some of the risks associated with investing in such companies.

Why hold shares in BPR-qualifying companies?

• Faster inheritance tax exemption: Whereas making a gift means they take seven years before becoming exempt from IHT, investments in a BPR company are exempt after being held for just two years, provided the shares are held at the time of death.
• Greater access and control: Unlike a gift, the investor retains control over the investment and can sell it if they need to. Money taken out of the investment however will no longer be exempt from inheritance tax.
• Simplicity: Buying a BPR investment is relatively simple compared to setting up a trust as there are no complex legal structures.

What are the risks?
The value of a BPR investment will depend on the performance of the companies it invests in and you may get back less than you invest. Tax rules can change and investments in AIM-listed companies are likely to fall or rise more than shares on the Stock Exchange. There are however more products being introduced which focus on capital preservation and are primarily linked to the returns associated with renewable energy.

Choosing the right investment can be complicated which is why it is vital to seek advice from an independent adviser.

By Philip Harper  |  June 2023

Your retirement journey starts right now!

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company pension scheme. For most people now, this route simply doesn’t exist. Saving for a “pension” can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your life, and also how your money is treated once you die.

 The 2015 changes to the “at retirement” rules vastly increased flexibility and brings with it a new era of personal responsibility in retirement.

 Working beyond state pension age is no longer an exception and it is becoming increasingly common to consider downsizing or releasing equity in their home as a part of their retirement planning.

Far more choices will have to be made and the answers themselves become less obvious. How do you best invest your savings? How do you want to take income in the future and what happens to your assets when you die?

The new normal requires a plan. Having a plan not only helps you understand what you are aiming for, but regularly reviewing that plan enables you to check you are on track.

By Philip Harper  |  October 2022

Revisiting your Inheritance Tax strategy

The latest data from HMRC revealed IHT receipts for April 2021 to March 2022 were £6.1bn, 14% (0.7bn) higher than in the same period 12 months earlier.

Receipts have increased partly due to higher death rates during the pandemic, as well as due to the rise in property prices which has seen more families coming into scope for IHT. With thresholds frozen at current levels, the nil-rate band of up to £500,000 – IHT is effectively a stealth tax.

Below are a few IHT top tips:

• Gifts – use your £3,000 annual allowance before the end of each tax year, or you can make gifts of up to £250 per person per tax year.
• Make a Will – and keep it up to date
• Leave money to charity – if you leave at least 10% of your net estate to charity, the IHT rate reduces from 40% to 36%
• Take out life assurance – this won’t reduce your estate but instead provides a lump sum to your beneficiaries to help pay the IHT bill. The policy should be written in trust.
• Trusts – for example, putting money into a trust to pay for a grandchild’s education or to support a range of potential beneficiaries.
• Pension nomination – minor tweaks to where to direct the potential death benefits can prevent large IHT issues on the estate of the second spouse on death.
• Take advice – sensible IHT planning can help to reduce the amount of you IHT your beneficiaries will have to pay and safeguard your wealth.

By Philip Harper  |  October 2022

A case for natural income

Whilst capital values have been bouncing about in recent years, the natural income distributions from FM’s income portfolio have stayed incredibly consistent. ‘Natural Income’ is the phrase we use to describe the process of producing income without disturbing the underlying investment holding. Many clients were very surprised they didn’t see a drop in income and in fact the underlying income performance during the worst COVID months, helped to encourage and remind us that pure income funds do have their place for those looking for regular investment earnings. The charts below confirm this fact.

FM Income Portfolio showing historical income payments

Each quarter we review the portfolio to check that it’s doing what we expect it to and for five years or so, we have not needed to make any significant changes. In addition, we will periodically meet with the fund management groups to get some deep dive information from those who make day-to-day investment decisions.

Our Income Portfolio is primarily used inside ISAs, however it’s also available as a General Investment Account (GIA) and although any income generated, isn’t as tax efficient as an ISA, many clients still use this route as a method to squeeze the maximise returns from their savings. If you would like details on the underlying funds or to discuss whether this is an appropriate option for you, please do call us.

By Philip Harper  |  October 2022

Don’t let caution get the better of you.
“A ship is safe in harbour, but that is not what ships are for”

Until relatively recently, inflation wasn’t a serious concern. The UK hadn’t seen persistent price rises since the 1970s. Today, there are reasons to be more concerned. Supply shortages and bottlenecks, higher energy costs, increases in wages to attract staff in sectors finding it difficult to recruit and the government unwinding covid support schemes are pushing up prices. While central banks continue to suggest that the rises are “transitory”, many economists are assuming inflation will settle at a higher level than it has over the past few decades.

When inflation rises quickly, the Bank of England will tackle it by raising interest rates. They work on the principle that when borrowing is more expensive, people will have less to spend, and prices will go down in response. However, if inflation is caused by external forces – such as the global squeeze on energy prices, then raising interest rates may not solve the problem.

This may be an issue for investors. Even if inflation stays in line with the Bank of England’s targets, long-term investors need their savings to grow by around 2% a year just to ensure it maintains its purchasing power.

The most important rule for any long-term investor is to avoid “reckless caution”. Investors often don’t recognise that there is a risk associated with keeping their long-term savings in cash because their capital value stays the same, but their buying power will be progressively less and less. One of fm’s 7 principles of investing is – don’t just invest in cash. Every investor does need emergency funds but for longer term investment plans, other asset classes will offer better prospects for capital growth and potentially beat the perils of inflation.

By Philip Harper  |  June 2022