19 June 23

How Business Relief helps with intergenerational wealth planning while retaining your client base | Triple Point

How Business Relief helps with intergenerational wealth planning while retaining your client base

Estate planning is all about keeping wealth in the family by passing down more of it to future generations. And when it comes to planning for future generations, investments that qualify for Business Relief are an increasingly important part of the conversation.

Intergenerational wealth planning has been a hot topic for some years, and with good reason. Over the next 30 years, an estimated combined sum of family wealth in the region of £5.5 trillion will be handed to different generations, with most of that either through inheritance or gifting.[1]

However, the other side of the coin is that inheritance tax (IHT) receipts are also increasing. In May, HMRC reported that IHT receipts rose to £600 million in April, £100 million higher than the same month one year ago.[2]

In fact, over the 2022/2023 financial year, HM Treasury collected £7.1 billion in inheritance tax, while the Office for Budget Responsibility (OBR) expects IHT receipts will increase to £7.2 billion before April 2024 and as much as £8.4 billion by 2027/2028. And regrettably of course, beneath the headline figures are thousands of families who will be left facing an IHT bill that could take a significant chunk out of the legacy they were expecting to receive.

At the same time, families have lots of complex and sometimes competing needs. With more people living longer in retirement, and often requiring ongoing medical and living assistance as they get older, transferring wealth down can be difficult, and potentially short-sighted. Moreover, with more people now receiving their inheritances at a later stage of life than in previous generations, if someone receives an inheritance in their 70s, they may want to think about how it impacts their own IHT planning. All of this complexity means advisers cannot view their clients in isolation, as the estate planning strategies they use today will have longer-term effects for generations to come.

So how does Business Relief (BR) fit into all of this? First, it makes sense for advisers to ensure that any transfers of wealth are accomplished as tax-efficiently as possible, without clients necessarily losing access to that wealth completely during their lifetime. Investments that qualify for Business Relief can help give clients – 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.

Business Relief explained

If a client owns shares in a company that qualifies for Business Relief, those shares become fully exempt from inheritance 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 large sums, both of which can take seven years before achieving full IHT exemption. The added benefit for clients is that because their money is invested, it is held within their name and stays fully in their control throughout their lifetime, before being passed on free from IHT upon their death.

Business Relief-qualifying investments should also be viewed as important estate planning assets for the 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.

Even in those instances where the shares were held by the client for less than two years upon their death, their spouse/civil partner only needs to make up the remaining time before the two-year qualification period is reached. For other beneficiaries, the two-year qualification period begins again once the shares are transferred into their ownership, but after just two years the shares will no longer form part of their taxable estate either.

How BR-qualifying investments can consolidate your client base
For advisers, recommending BR-qualifying investments to clients has multiple advantages. Not only does it demonstrate a more strategic component of estate planning, alongside more traditional arrangements such as gifting or trusts, but it can be used to ensure clients can take a regular income from their investment, or make withdrawals should they ever need to (while bearing in mind any amounts withdrawn from the investment are no longer free from IHT).

But even after the death of the client, using BR-qualifying investments means those assets are more likely to stay within the advisers’ business, rather than being lost once the wealth has been passed down a generation – which is what usually happens after an estate is claimed. Intergenerational estate planning really is ‘sticky’ business for advisers.

Business Relief has been an established part of UK tax legislation since 1976, when it was introduced to help business owners pass the business down to future generations without triggering an inheritance tax bill that could force the sale of the business itself. In other words, ‘keeping it in the family’, with more than one generation claiming inheritance tax exemption on their BR-qualifying shares, is what the original Business Relief legislation intended – only now it is being applied not just to UK family businesses, but a growing number of UK families too.

Straightforward solutions from Triple Point

At Triple Point, we see Business Relief playing a critical role in estate planning conversations, particularly among clients with larger IHT liabilities, although that tax treatment depends on individual circumstances and may be subject to change. We offer a range of estate planning support for advisers, including CPD-accredited tax planning webinars and tools to make life easier when discussing estate planning with your clients.

Contact your local Triple Point Business Development Manager for more information. 

[1] Kings Court Trust research

[2] https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-monthly-bulletin#inheritance-tax-iht

Tags on this post: adviser education, estate planning