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How Business Property Relief can unlock estate planning conversations

Olive hadn’t heard about this option before. It changed her perception of estate planning.

In this week’s Tax Angle, I look at an issue that comes up fairly often in estate planning conversations. What can you do if a client has a substantial inheritance tax liability where gifting is an obvious option, but they just don’t want to give away a large sum of money?

There are several reasons why that might be the case. A client may have beneficiaries they consider are too young to inherit now, and may also consider trusts too expensive or complicated. They may be concerned about possible future care costs. They may worry they won’t live seven years. Or they may simply feel uncomfortable giving away a lot of money that’s taken a lifetime to build up.

In some cases, a financial adviser is able to show such a client, perhaps by use of cash flow modelling, that they can in fact comfortably afford to make lifetime gifts as part of their inheritance tax planning. But that won’t always be the case.

Olive thinks estate planning means giving up control of assets

Meet Olive. She is a retired civil servant in her mid-eighties, in good health and is very independent. Her late husband left her assets valued at just over £1.7 million, including a house worth £900,000, a large investment portfolio and some savings held in cash and fixed-term bonds. She has a defined benefit pension that covers her day-to-day expenses.

Olive meets with Ben, her financial adviser, who brings up the topic of estate planning. Olive understands that, without any planning, her estate will leave her beneficiaries with an inheritance tax bill. Nonetheless, she raises a number of objections when Ben runs through her options.

“What if I need it?” she asks when they talk about gifting. Olive also mentions that she has concerns about her daughter’s marriage, and is wary of her son-in-law getting some of her money if he and her daughter divorce. 

Olive also has a potential desire to travel once the coronavirus pandemic is over. She says she’s never been a big traveller, and may in the end decide not to bother. But she would like to have the option.

The bottom line, Ben realises, is that Olive is a client who is determined to keep her options open. She wants to make the decisions about what happens with her money while she’s alive. And she wants to pass on as much of her estate as possible to her loved ones when she passes away.

Ben then suggests life insurance as an option to explore.

“All those medical questions? No thank you,” is Olive’s definitive reply.

Ben introduces Olive to Business Property Relief

At that, Ben mentions investing in shares expected to qualify for Business Property Relief (BPR), which Olive could fund by selling some of the shares she inherited from her late husband. A BPR-qualifying investment can be passed on free from inheritance tax on death, as long as it has been held for at least two years at that time. The investment would stay in Olive’s name, meaning she should be able to access some or all of the capital later on if she needed it.