24 November 23

How to talk about Business Relief with clients

Estate planning can be a difficult, and sensitive, conversation to have with clients. It’s never easy to talk to people about their own death, or the possible implications for their family. Some want to avoid talking about it until “much later”, while others may feel it is already too late. Estate planning can also seem too emotionally complex and, from a legal perspective, too complicated and confusing. But at the same time, every adviser knows estate planning simply cannot afford to be ignored. It’s therefore essential that when having discussions about Inheritance Tax (IHT) and estate planning, that the emotional aspects are addressed, and the longer-term considerations are carefully explored and understood before discussing the ‘nuts and bolts’ of any potential estate planning solutions.

But one way to help make these discussions much easier is to focus on estate planning that gives clients a sense of control. A prime example would be investments that qualify for Business Relief. When introduced by the UK government in 1976, the intention was to make it easier for family-owned businesses to be passed from one generation to the next, without triggering a large IHT bill that could force the beneficiaries to sell the business. Today, almost 50 years later, Business Relief is viewed as an important IHT relief available not only to family-owned businesses, but also to investors in Business Relief-qualifying companies. At a time when IHT thresholds are frozen and more families are being left with large IHT bills than ever before, Business Relief is an important tax allowance that should be part of every financial adviser’s toolkit, as a solution that sits comfortably alongside more traditional estate planning concepts such as gifting and whole of life insurance.

A fast estate planning solution

Shares in companies that qualify for Business Relief become exempt from IHT after just two years, provided they are owned at the time of death. Two years is a much faster way of achieving IHT exemption compared to using trusts or gifting large sums (both of which only become fully IHT-exempt after seven years). Also, in the case of married couples and civil partners, should the client die before the shares have been held for two years, the shares can be transferred to their spouse or partner without resetting the two-year holding period, meaning they can also achieve IHT exemption on the value of the investment.

A straightforward process

Owning shares in companies that qualify for Business Relief is a relatively simple process compared to other estate planning strategies such as setting up a trust or arranging a whole of life insurance policy. In the case of many later life clients, particularly those in ill health and where time might be short, investing is a faster and more convenient way to achieve IHT exemption on some or all of their assets. And when the time comes, claiming Business Relief on the investment will be a straightforward process carried out by the executor of their will or the administrator of their estate.

Clients keep control of their wealth

Giving up the ownership of their wealth – either through gifting or placing assets into trust – can be a common fear for clients, especially those worried about having to pay for care in later life. But one of the key aspects of an investment in Business Relief-qualifying companies is that the shares are held in the client’s name, and stay under their ownership for as long as they own them. This means clients can choose to sell the investment and have some or all of the money returned should they need it (although any money withdrawn from the investment would no longer be exempt from IHT).

Helping with a range of specific estate planning issues

Another key element of why Business Relief is increasingly useful with clients is due to the fact it’s status as a tax allowance and as an investment vehicle helps it to overcome specific tax and estate planning issues that more clients are likely to face.

For example, business owners who have sold – or are in the process of selling – their business risk losing its Business Relief qualifying status after the business is sold. But the proceeds can be reinvested into another qualifying company or Business Relief-qualifying investment within three years of the sale, helping to ensure that the sale proceeds are not liable for IHT.

Alternatively, in cases where clients have appointed a Power of Attorney (POA) to look after their affairs, it can be extremely difficult to get the Court of Protection to grant permission to gift money away or place assets into trust, as those activities are considered in the interests of the beneficiaries instead of the client. But because a Business Relief-qualifying investment remains in the client’s name, there’s no need to apply to the Court of Protection when making the investment. This could prove to be an invaluable estate planning approach when other potential options have been exhausted.

A reminder about investment risk

As with any investment, it’s important to understand the risks. HMRC only makes a decision on IHT exemption on a case-by-case basis after death. Tax rules and tax reliefs are also subject to change, and there’s no guarantee a company expected to qualify for Business Relief will continue to meet the qualification requirements in future.

Here to help at every step

Estate planning will always be a sensitive issue, and one that many clients struggle to articulate and come to terms with. But advisers can help to make these conversations more straightforward by focusing on how their needs and wishes can be respected, and the needs of their families fully considered too, by using Business Relief as part of a comprehensive estate planning strategy.

We have also developed a range of estate planning client scenarios that help to set out specific client issues that can be solved using Business Relief. For more information, visit triplepoint.co.uk or ask your local Triple Point Business Development Manager for details.

Important information

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 article has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.

Tags on this post: adviser education, br, iht, vct