Triple Point and MT Finance agree £30m corporate revolving credit facility
29 August 23
29 August 23
Business Relief, formerly known as Business Property Relief, is a tax relief that was introduced in the 1976 Finance Act. The intention behind it was clear: when the owner of a family business dies, their beneficiaries shouldn’t be left facing an IHT bill that would force them to sell or break up the business to cover the IHT liability. Business Relief was a valuable way of ensuring that small, family-owned businesses stayed in the hands of those families, making the value of the business itself outside of the deceased’s taxable estate.
Almost 50 years later, and Business Relief has come a long way. Over time, the rules relating to which companies can qualify for Business Relief have evolved. It’s no longer a relief applied solely to family-run businesses. In fact, today, many private limited companies, limited liability partnerships and sole trader businesses – provided they are actively trading businesses – can qualify. As a consequence, for investors with a significant IHT liability on the value of their estate, investing in Business Relief-qualifying companies presents a significant estate planning opportunity.
Where does Business Relief come in for clients?
If a client owns shares in a company – or portfolio of companies that qualifies for Business Relief, those shares become fully exempt from IHT after a holding period of just two years, provided the shares are still held at the time of death. That’s a much shorter timeframe than using trusts or gifting away large sums to family, as both usually take seven years before achieving 100% IHT exemption. The added benefit for clients using Business Relief investments to mitigate IHT is that their money is invested, so it can continue to grow. It also means the sum invested remains in the client’s control throughout their lifetime, before being passed on free from IHT upon their death.
So, what are the five biggest myths surrounding Business Relief and IHT?
Myth 1: IHT planning is only for the very wealthy
False. Headline figures from HMRC this year showed IHT receipts were up by £1 billion in the months between April 2022 and March 2023 compared to the same period last year. This follows an upward trend of record-breaking intakes from HMRC in recent years. With the nil-rate band unchanged at £325,000 since 2009, and not expected to be reviewed until April 2028, more families are getting caught in the IHT net.
Myth 2: Newer IHT allowances mean everyone can pass on £1 million completely IHT-free
Since 2015, homeowners have been eligible for the ‘residence nil-rate band’, on top of their nil-rate band. This is an additional tax relief worth up the £175,000 provided the family home is passed on to the deceased’s children or grandchildren. Under IHT legislation, spouses and civil partners can inherit their other half’s share of an estate IHT tax-free, so their nil rate band does not need to be used up. The additional main residence nil-rate band can also be passed on. Theoretically, this means that a married couple can arrange their financial affairs to ensure that when they both die, £1 million of their combined estate is free from IHT.
So, while there is some truth to this statement, in reality, not everyone will be able to claim the allowance, and there are many hurdles to clear in order for families to benefit fully. First, to avoid using up the nil-rate band of the first partner, the entire estate must be left to the surviving spouse. Also, in cases where the estate exceeds £2 million, the residence nil-rate band that can be claimed will be reduced by a rate of £1 for every £2 over that £2 million amount. As a result, larger estates may not benefit from the allowance at all.
Myth 3: Business Relief investments are just for older clients
This common misconception has arisen out of one of the key benefits of using Business Relief investments with clients – namely that the investment will qualify for Business Relief after being held for just two years, provided it is still held upon death.
Certainly, a two-year timeframe for full IHT exemption is much more preferable to the seven-year wait that is required for trusts and gifting. But advisers should also consider Business Relief-qualifying investments as investments in their own right, capable of delivering capital growth and a consistent income for the full life cycle of the investment.
Investments that qualify for Business Relief can help give clients at any age – even those with complex estate planning needs – a much-needed element of control in later life.
It also means that similar control and IHT exemption can be handed down to their beneficiaries. Once the invested has passed the two-year qualification period when the client dies, then whoever inherits the investment – it could be a spouse/civil partner, a descendant or even a friend – is entitled to the same IHT relief from the investment for as long as they choose to keep their BR-qualifying shares. The shares are 100% exempt from IHT straight away and the person who receives these shares doesn’t need to wait two years.
Myth 4: Later life clients can’t afford to have their wealth tied up in investments
Of course, IHT isn’t the only worry facing clients, as the increasing cost of later-life care is also a serious concern. New research from UK Care Guide suggests the average annual cost of a self-funded care home stay now stands at £45,897, or £882 per week, with the cost of care homes in cities around the UK rising by an average of 11% in 2023.1 And for those who need to be placed in a nursing home – receiving round-the-clock care – the costs are even greater. Average UK nursing home costs are around £56,056 annually, which works out at £1,078 a week.2
But with a Business Relief-qualifying investment, the shares remain in the name of the client throughout their lifetime. As a result, they can choose to sell some or all of the investment should they need to (although any money withdrawn will no longer be exempt from IHT).
Even so, it’s important for advisers to determine how liquid such investments are. For example, with the Triple Point Estate Planning Service, after a withdrawal is requested, it aims to provide the required funds within 20 working days and has been returning funds at an average rate of eight working days over the last year. Business Relief is an excellent way to carry out estate planning without clients feeling anxious about losing access to their wealth during their lifetime.
Myth 5: Business Relief investments are too complex for later-life clients
Business Relief is a well-established tax relief that has been helping thousands of investors to achieve IHT exemption on the value of their investments for almost 50 years.
Moreover, an investment in Business Relief-qualifying companies is relatively easy for clients to understand. The Triple Point Estate Planning Service, for example, puts investor money to work through specialist businesses that meet the criteria for Business Relief and arrange funding for both public sector and private sector companies. As a result, it is helping families to claim IHT relief on their wealth, while investing in ways to unlock the UK’s economic growth potential and improve society.
Of course, all investments carry an element of risk, and investing in BR-qualifying companies is no exception, which is why estate planning should always involve a professional financial planner.
Triple Point does not provide investment or tax advice, and information in this promotion should not be construed as such. Tax treatment depends on the individual circumstances of the investor and is subject to change. Tax reliefs depend on the investee companies maintaining their qualifying status. This financial promotion has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.