IHT is applied to all assets above the Inheritance Tax Threshold (also known as the nil rate band), set at £325,00 for individuals and £650,000 for a married couple. Changes to IHT were announced in 2015 and the Government will add a “family home allowance”, eventually worth £175,000 per person, to the existing £325,000 tax free allowance from April 6, 2017. This additional allowance will start at £100,000 in 2017-18 and increase to £150,000 in 2019-20 before finally reaching £175,000 in 2020-21. However, without planning, IHT can take up to 40% of your wealth before it is passed down to your family.
Inheritance tax liability can be reduced with a little advance planning, keeping your hard earned wealth within your family. There are various options includings gifts and trusts; however, these typically take several years to be effective, and you can lose control and access to your money. Investment into Business Property Relief (BPR) eligible companies provides investors with speed, simplicity and flexibility. By selecting companies that focus on capital preservation with predictable growth, investors can gain IHT relief after 2 years while retaining control of funds.
The Guinness Sustainable Inheritance Planning Service invests in companies that benefit from Business Property Relief, specifically in Sustainable Energy such as solar. With a focus on estate preservation, performance, security and flexibility, this service is equipping investors with a tool to effectively mitigate IHT liability through investment in sustainable energy.
Created in 1976 by the UK Government, BPR was originally intended to remove IHT liability from family businesses being passed down between generations. Over the years, BPR has been expanded to allow non-family investors to benefit from BPR, as the Government recognised the value of investment into trading companies. The relief was fully extended in 1996 and has continued ever since. BPR eligible companies are most unquoted companies with some exceptions, including property and investment companies. This structure allows investors an opportunity to mitigate their IHT liability and provides companies with an opportunity to attract investment.
Below is a practical example to illustrate how Business Property Relief can help reduce an IHT liability.
Jack’s estate is valued at £1 million, but has not invested in shares that qualify for BPR. On death, the estate must pay IHT on everything over the nil-rate band at 40%, giving an IHT bill of £270,000.
Sophie’s estate is also valued at £1 million, but she has invested half this amount in shares that qualify for BPR. On death, the estate does not need to pay IHT on the shares that qualify for BPR, but only on the balance of value over the nil-rate band at 40%, giving an IHT bill of only £70,000.
|Jack’s Estate||Sophie’s Estate|
|Value of estate||£1,000,000||£1,000,000|
|Value after £325,000 ‘nil rate band’||£675,000||£675,000|
|Amount invested in BPR qualifying assets||£0||£500,000|
|Amount liable to IHT||£675,000||£175,000|
|Inheritance Tax payable (@40%)||£270,000||£70,000|
* Prospective Investors should consult their tax advisers with respect to their own tax situations and the consequences of investing. Please bear in mind that tax rules and their interpretation are subject to change.
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