So long as the BPR-qualifying shares stay in the trust for seven years, or until Geraldine passes away (whichever is sooner), they should not create an inheritance tax bill for Geraldine’s estate.
In addition, if Geraldine’s estate is above the taper threshold for the residence nil-rate band (currently £2 million), settling some of her wealth into trust during her lifetime could restore the full value of this relief to her estate when she dies.
What are the risks?
As mentioned, shares in companies expected to qualify for BPR are high risk investments. They put capital at risk, meaning the value of an investment and any income from it could go down as well as up. Investors could get back less than they invest.
Investors also need to understand that the value of inheritance tax relief will depend on an investor’s personal tax situation, and on tax legislation that could change in future. Tax relief depends on portfolio companies maintaining their qualifying status.
In addition, AIM-listed and unquoted shares can fall or rise in value more than shares listed on the main market of the London Stock Exchange. They can also be harder to sell.
TOMORROW: Tune in to the Octopus Online Show
Every month, the Octopus Online Show explores a different advice topic. Tomorrow’s episode (10am, Friday 31 July) looks at how you can help your clients overcome their fears at times of uncertainty, so they can take advantage of opportunities presented by the crisis.
It promises to be an informative 45 minutes, and you’ll get CPD for attending. For more information, click here.
BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client's financial situation, objectives and needs. We do not offer investment or tax advice. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: July 2020. CAM009992.