Client Case Study: Business Property Relief
Business Property Relief (BR) is a valuable form of tax relief. It allows you to claim Inheritance Tax (IHT) relief on business assets you own, including shares in qualifying businesses.
In this article, we break down a Legacy client case study to demonstrate and provide a thorough example of how we have utilised BR in estate planning to great success for our client.
Figure 1: Client Case Study Overview
Case Study Breakdown
Client
We recently met with a client whom we have undertaken some planning with over the last few years, a key objective of the client has been to mitigate any potential IHT liability the estate may be liable to on his death.
The client in question is an 87, year-old unmarried male, a Will has been written with the estate proceeds being left to the client’s children and partner.
Legacy Planning
In 2018 we recommended a total investment of £630,000 was made into Business Relief qualifying investments split between EIS and ITS products and providers for diversification. The initial IHT liability on the client’s estate at this point was c.£720,000, with careful planning we managed to reduce this to c.£381,000, as of January 2021.
As a result of considerable growth within the client’s Legacy investment portfolio the potential IHT liability had increased to c.£455,000 in October 2021. A further £230,000 was therefore invested in Business Relief Products funded via alternative investments to maximise tax efficiency within the estate.
Following the 2-year-old holding period, it is anticipated that the IHT liability will have reduced to c£363,000 of which £174,000 will be covered via life cover written in trust.
The anticipated Inheritance Tax payable will have effectively reduced from £720,000 to £189,000 in 2023 as a result of the life cover in place and the investments made into BR qualifying products, saving the estate £531,000 in tax.
Solution Breakdown
Figure 2: Solution Business Property Relief Products, Client Case Study
Investing in Business Relief qualifying investments plays a key component in Legacy’s Estate Planning Service due to the considerable tax advantages that these products offer.
Some of the key features and reasons for investing in Business Relief qualifying investments when considering IHT within your estate are highlighted below.
Investments will be exempt from IHT after 2 years (provided they are still held at time of death)
Subject to liquidity, capital can be accessed if required
Investments generally target an annual return of 3% - 4%, net of fees
Certain products / providers offer an additional life cover / insurance option, where 40% of the net investment falls outside of the estate on immediate investment and not subject to the normal 2 years holding period (subject to age / conditions etc)
CGT on the investments will die with you
Investing in Business Relief qualifying products are considered high risk investments and are not suitable for all investors and have a number of considerable risks attached which need to be considered. Business Relief investments should form only part of an overall strategy when considering Estate Planning.
Rates of tax, benefits and allowances are based on current legislation and HMRC practice which may change without notice. In the event of legislative changes, any IHT benefits may be lost. Changes in law can be retrospective.
Let us get in touch
To find out more about how Legacy can help you with Business Property Relief or Inheritance Tax planning, contact us today for a confidential, no obligation consultation.