Shares in a business which qualify for Business Property Relief (BPR) can benefit from 100% Inheritance Tax mitigation if held for two years and until death.
Many businesses in the UK qualify for this relief and many businesses rely on this exemption to pass their family-owned business down to children or other beneficiaries, free of Inheritance Tax. If that business were to instead be sold, then the proceeds of that sale would lose that exemption.
It may be the case that a business owner does not have any children, or anyone else they would like to leave the business to, and so selling might be the favoured option.
A BPR qualifying asset can be sold and reinvested into another BPR qualifying asset/s within 3 years of that sale, retaining the BPR status immediately and without re-setting the 2-year clock needed to obtain the exemption. Importantly, during those 3 years, or a period up to those 3 years, the proceeds while not invested in a BPR qualifying asset will not be exempt.
Consider a quick example
John is a widower whose health has recently deteriorated. He sold his business two years ago for £3 million. He has decided to use half of the proceeds to fund his retirement and would like to leave the rest to his two sons. He is aware that this will incur a significant Inheritance Tax bill on his death and is looking at ways to reduce this.
Some more traditional forms of estate planning such as gifts and trusts may not be suitable because they will take seven years before becoming free from Inheritance Tax and this may be unrealistic given John’s poor health.
John’s financial adviser explains to him that the shares in his business qualified for BPR which means he could have left them to his sons free from Inheritance Tax. However, he chose to sell the business and so in the current situation those proceeds will be subject to Inheritance Tax due to the size of his estate.
What is the solution?
John’s adviser suggests he invests the proceeds of the sale of his business into an AIM portfolio service. As John only sold the business 2 years ago he is within the 3 year window where he can re-invest the proceeds into a BPR qualifying asset/s for immediate Inheritance Tax mitigation, without the need to hold the assets for another 2 years.
AIM is one of the world’s most successful growth markets. To hear more about the success of AIM as a growth market watch our session Another record-breaking year for AIM but what for 2021?
A further benefit is that the investment will remain in John’s name and so he will be able to make withdrawals should he need the funds for something in the future.
The Fundamental AIM IHT Portfolio is a discretionary investment management service where clients can obtain 100% mitigation from Inheritance Tax, benefit from the capital growth afforded by the AIM market and retain control of their assets.
To hear the many other ways BPR qualifying assets can help your clients’ Inheritance Tax planning watch our session How can AIM help you and your clients?
You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 17 years, from the link here.