A welcome side-effect of estate planning

Towards the end of 2019, Octopus commissioned a survey of advisers in which nine out of ten respondents said their clients are increasingly reluctant to give up access to capital as part of their estate planning.

I ended the last Tax Angle by sharing a link to a planning scenario that shows why investments expected to qualify for Business Property Relief (BPR) are worth considering in situations like this. Because BPR-qualifying investments stay in the client’s name, they directly address that reluctance.

Here’s the link again in case you missed it

How estate planning can lead to advising on more of a client’s assets

Today, I’m going to look at how encouraging clients to feel more comfortable about doing their estate planning can lead you to advise on more of that client’s assets.

In fact, our survey found that 76% of advisers said that estate planning has led to them advising on client assets that they hadn’t previously advised on¹.

“When you start talking to clients about their inheritance tax problem, more often than not, they will begin to open up about all the other assets they own, whether it’s the second bank account or the holiday home in Spain,” says Jessamy Walker, a financial planner at Brown Dog Financial Planning in Berkshire.

Estate planning can give an adviser greater visibility of a client’s assets, because they need to plan for the whole estate. In some cases, the adviser will identify a better way to allocate assets they weren’t able to advise on previously.

“Talking to clients about inheritance tax planning leads to conversations about their entire estate,” says Ken Bannister, an estate planning consultant at Active Wealth Independent Financial Advisers in Hampshire.

“We’ll often find that people have investment bonds and large ISA accounts, which we wouldn't necessarily have touched before starting their estate planning.”

Estate planning never happens in isolation, either. Some clients may be planning to sell their home with a view to downsizing, or selling a business as they retire, both of which would free up previously illiquid wealth.

“Sometimes people sell a second property,” says Geordie Bulmer, an independent financial adviser, inheritance tax and pension specialist at AISA Retirement Planning in Bristol.

“They realise they’ve got to deal with the hassle of renting it out, and they also realise that the value of it is going to be taxed at 40% when they pass away, because their home uses up their nil-rate band. So some people think, let’s sell the house, take the cash and put that into an inheritance tax service.”

All of the above examples are of planning that was right for the client given their circumstances and objectives. The fact that working together on the plan gave the adviser more visibility over the client’s estate was a side-effect.

Nonetheless, it’s a very welcome side-effect. Welcome for the adviser, who now has more assets under advice. And welcome for the client, because their adviser is now in a better position to see the whole picture and advise accordingly.

Whether or not a client eventually uses BPR as a solution, discussing it as part of the estate planning conversation can help more clients feel confident about taking action. So it’s an area of the market that’s worth being proficient in, because it can unlock some valuable situations. 

Of course, BPR-qualifying investments won’t be suitable for every client. They put investors 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. Clients should also understand that the value of inheritance tax relief will depend on an investor’s personal tax situation, and on tax legislation which 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. This is particularly relevant for clients who are considering BPR as a way to retain access to their assets.

Where to find out more

As I say, there’s a planning scenario that looks specifically at a situation where a client has an estate planning need but wants to stay in control of their capital.

It includes a client-friendly video, which you may want to show to a client to help them see how this type of investment works.

You can access this planning scenario here.

¹ Unlocking Estate Planning: How Business Property Relief is opening doors for advisers, published by Octopus Investments, February 2020

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. CAM009960.