How to talk to clients about Business Property Relief

If providing financial advice were just a matter of logic and numerical calculations, so-called robo advice would probably have taken off by now. 

But we all know that isn’t the case. People feel an emotional attachment to their money. Where it came from, and where it goes, are both deeply important to them.

This has profound implications for conversations about estate planning, and about Business Property Relief in particular.

“There’s often a control thing where clients are worried about whether they can afford to give their money away,” says Jessamy Walker, a chartered financial planner at Brown Dog Financial Planning in Berkshire.

“That’s where BPR-qualifying investments can come in, it tends to make the conversation a lot easier.”

Unlike with many other types of estate planning, with BPR it’s possible to do the planning now and reverse the decision later. In practice, most investors tend to stay in the investment for the rest of their life, but they know they can request to sell at any time. This can make a big difference to peace of mind and willingness to take action.

Access is a benefit of some BPR-qualifying investments, but it’s important for clients to understand that liquidity can’t be guaranteed. BPR-qualifying investments are made into unquoted companies or companies listed on the Alternative Investment Market and selling shares is not as easy as selling shares of companies listed on a main market. 

The fact that the investment stays in the client’s name is a feature cited by a lot of advisers we work with as one of the reasons a BPR-qualifying investment is right for their client. A BPR-qualifying investment won’t be suitable for every client though, it’s important to take into account their objectives, attitude to risk and capacity for loss when making a recommendation.

If you have clients with estate planning needs who want to retain access to their capital, find out more about how BPR could help them at here.

Clients like to see where their money goes

Some advisers also find that when they explain to clients about the impact their investment will have, it helps the client feel more comfortable about making the investment. Clients are often very interested to hear about the activities of the companies they hold shares in.

My colleague Neville Flood, a senior business development manager, recalls one occasion when a client had a definite estate planning need, but said they were uncomfortable not paying as much inheritance tax because it would mean less revenue going to the Government.

“That was until she learned more about what the BPR-qualifying investment she was considering actually does,” says Neville.

“Her adviser revisited the product, and the fact that it invests in real businesses that provide employment for people. They talked about how the client’s money would fund renewable energy projects, how it would help build healthcare facilities and GP surgeries. The client saw that by investing in a BPR solution, she’d be investing in the infrastructure of the UK economy.”

As a result, the client made an investment that was right for her in her circumstances. But she needed to know the broader context before she was happy to get started.

Clients need to be aware of the risks

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. The value of their investment, and any income from it, could fall as well as rise, and they may not get back the full amount they invest.

Clients should also 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 and AIM-listed companies can fall and rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell. This is why it’s not possible to guarantee liquidity. It’s recommended advisers talk to the BPR provider they are considering to understand how it has addressed this risk.

Find out more

We’ve created a short video that illustrates how a BPR-qualifying investment could benefit a client who wants to stay in control of their capital.

You can watch it here.

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: July 2020. CAM009902.