Business property relief: an essential financial planning solution - case study

by Fraser Donaldson
Insight Analyst - Wealth Management

September 2014

Defaqto has seen steadily increasing use from financial advisers in tax shelter investing over the past few years. Venture capital trusts, enterprise investment schemes and BPR are now in the process of becoming mainstream product solutions for adviser clients.

Defaqto has published a new case study which includes information on why BPR should be considered as an important tax relief and how it can be used in financial planning. If you can answer the question at what point and under which circumstances BPR solutions should be considered for clients you should be able to apply good client segmentation to identify, at an early stage, individual clients for whom BPR may be suitable.

Why consider BPR?

Under UK legislation, an individual's estate worth more than £325,000 (the nil rate band) is subject to 40% IHT, payable on death, and the nil rate band is expected to be frozen until at least 2018.

The value of an estate includes assets such as property and investments, as well as a proportion of any gifts made in the seven years prior to death, life assurance policies and pension plans not held in a trust.

Since individuals are increasingly being affected by IHT thanks to rising house prices and growth in value of other asset classes, the emphasis on IHT planning is becoming ever more important.

Investing in a vehicle with BPR can have certain advantages over other types of financial planning opportunities for the following reasons:

• Whereas traditional forms of inheritance tax planning (such as gifts or simple trusts) take seven years to reach full exemption, BPR can be obtained in just two
• Unlike some estate planning strategies, there are no complex legal structures, no expensive underwriting and medical reports
• Assets in a BPR qualifying investment service can be withdrawn in part or as a whole, helping a client to deal with changing life circumstances, such as the need for long-term health care
• The client can continue to enjoy growth or a yield on his assets, which can be taken or re-invested depending on his wishes and the terms of the underlying investment
• The investor does not want to lose control of their assets, which could be the case with other IHT planning solutions, although they reside in a tax-benign structure

Read our case study on BPR.