Help more clients take the first estate planning step

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’?” 

While estate planning will never be as easy as just pressing a button, talking to clients about BPR can bring the conversation back to something they are familiar with.

“It’s usually a conversation about moving money from one investment into another. It’s a higher risk investment but the inheritance tax relief is designed to provide some compensation for the additional risk investors are taking.” explains Steve.

“So the adviser can say to the client that maybe it’s time to move some money to start making it zero-rated for inheritance tax. Clients know their adviser for making investments so it’s familiar ground.”

Of course, you’ll need to consider a client’s attitude to risk and capacity for loss, amongst other things. BPR-qualifying investments are higher risk than regular investment portfolios and won’t be suitable for every client.

Clients need to be comfortable with the risks of BPR

BPR represents an incentive to investors to invest patient capital into qualifying businesses. So a substantial part of any conversation about BPR should cover the risks involved in making this type of investment. As I’ve already highlighted, BPR-qualifying investments put investor capital at risk.

Clients should be made aware that tax treatment depends on individual circumstances, and tax rules could change in future. Tax relief depends on companies maintaining their qualifying status.

Shares in unquoted companies or those quoted on the Alternative Investment Market (AIM) can move up and down in price by more than shares listed on the main market of the London Stock Exchange. 

Whilst liquidity is a feature of some BPR-qualifying investments, it can’t be guaranteed, and shares could be hard to sell. 

Where to find out more

As I say, BPR can help suitable clients in a wide variety of different scenarios.

If you have any clients who could benefit from estate planning but are concerned about giving away their capital, go to octopusinvestments.com/carol.

And to see how it can help a client who has sold a business in the last three years, go to octopusinvestments.com/alan.

BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of a 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: June 2020. CAM009864.