BPR is key to efficient estate planning

BPR is key to efficient estate planning

With more estates facing increasing inheritance tax liabilities, business property relief is the non-contentious and efficient way to mitigate IHT for estate planning.

Speaking at FT Adviser’s Tax Efficient Investing forum, Oxford Capital’s director of business development, Simon Ruthers, said BPR was a key component of estate planning and a viable way to reduce IHT liability.

He said that self investing in an Enterprise Investment Scheme, for example, was more efficient than gifting an estate or life assurance, two of the pillars of estate planning.

The third pillar, BPR investments is the most viable, he said.

The key benefits of BPR in estate planning was flexibility - investors are assured of access and control; availability - changes in circumstances can be accommodated; simplicity – there were no complex structures or need for medical underwriting, and timeliness as IHT benefits can potentially be seen after two years of investment.

Looking at an example of an EIS in action, Mr Ruthers said if there were £428,000 available to gift. The estate can put £328,000 in a discretionary trust and £100,000 would be BPR qualifying assets, which can be put into a second discretionary trust with the option of transfering it into a new trust after two years.

Setting an estate up as a trust was a popular solution, he said, but were more challenging to deal with, especially with issues such as lifetime charges.

BPR provides relief from IHT on the transfer of relevant business assets at a rate of 50 per cent or 100 per cent.

The 50 per cent business relief is on shares controlling more than 50 per cent of the voting rights in a listed company.

BPR allows business property to be passed on to beneficiaries of an estate without being subject to IHT.

To qualify for BPR, the property must have been owned for at least two years and still be held at death to qualify for relief.

Mr Ruthers said that BPR was particularly important for exit planning for business owners. Without BPR it would not be possible for a family business to be passed from one generation to the next.

If the company was considered part of the deceased’s taxable estate, the beneficiaries would most likely be forced to sell it in order to pay the IHT liability.

Using BPR, available at 100 per cent, a business owner could put the proceeds of the company into a qualifying investment and then a trust.