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Help more clients take the first estate planning step

For this week’s Tax Angle, I’m going to broaden the lens to show why Business Property Relief (BPR) should be part of every adviser’s estate planning toolkit. 

Because discussing BPR as part of an estate planning conversation can lead you to helping more clients in a variety of different scenarios. Clients worried about losing access to their assets. Clients with large ISA portfolios. Clients with a power of attorney in place. Clients who fear they have left their estate planning too late. Clients who have sold a business in the last three years.

Moreover, it’s a fast estate planning solution, effective after just two years.

Talking about BPR can make clients more comfortable about their overall estate planning

Peter Ditchburn, of Buckingham Gate Chartered Financial Planners in London, finds that talking to clients about BPR can help them see how they might build flexibility into their estate planning, and so make them more comfortable about estate planning as a whole.

“Even if it’s quite clear from cash flow modelling that it’s not going to be needed, people often just don’t want to give away what’s usually a six-figure sum of money,” he says.

“The thought that they’re not going to have it anymore is often, to some people, quite an uncomfortable one.”

A feature of BPR-qualifying investments is that they stay in the client’s name. Once a client has held a BPR-qualifying investment for two years, that investment becomes zero-rated for inheritance tax. They can then continue to hold it, knowing that if they want the capital later, they can request to sell it. If they die while holding it, they can pass it on without also leaving an inheritance tax bill.

“It’s an investment as well as being a tax planning tool,” says Ditchburn.

“If anything does happen, the investment is in their name and they can sell down their shares and use the proceeds how they see fit.”

It’s important to note here that selling shares is subject to liquidity, which can’t be guaranteed. It’s also worth noting that these are high risk investments and the value of a BPR-qualifying investment, and any income from it, can fall as well as rise. Clients might not get back the full amount they invest.

The key point is, talking to a client about BPR can help unlock an estate planning conversation even if that client ends up using another form of planning.

That’s because it addresses some very common objections about estate planning, such as the idea that it’s complicated and irreversible.

Clients express their concerns in different ways

Clients won’t always express these objections in so many words. 

It may sound odd, but it’s not that uncommon for clients facing substantial inheritance tax liabilities to say that they don’t mind paying the tax.

My colleague Steve Godfrey, a senior business development manager, has a simple explanation.

“Clients sometimes say they’re happy to pay inheritance tax because a lot of estate planning options look horrible. They mean thinking about trustees, life insurance, GP’s reports, and quite understandably some clients don’t want to do all that, so they convince themselves they’re OK with paying the tax.”

The reality, says Steve, is that such clients might be concerned about inheritance tax, but have rationalised the reluctance they have about taking the first step towards planning for it.

“I often say to advisers, if there was an easy way to deal with it, like a button where you vote ‘Yes’ or ‘No’ to paying inheritance tax and that was it, how many of your clients would vote ‘Yes’?”