Inheritance Tax (IHT) receipts were up an incredible 54% for April and May compared to the same period in 2020. Good news for the Chancellor, bad news for those looking to reduce IHT!

These figures are according to data published in a recent HM Revenue & Customs bulletin. The report confirms that full-year IHT receipts for 2020-2021 amounted to £5,326 million, a £204 million increase from the year before. In fact, for the period of April 2021 to May 2021, total receipts amounted to £966 million, an increase of £340 million on the same period last year.

What could be the reason for this?

In the report, HMRC stated that the increase could be due to “high volumes of wealth transfers that took place during the Covid-19 pandemic”. However, they cannot verify this until more data becomes available.

Another reason could be recent tax freezes, imposed earlier this year in the Spring Budget by Chancellor of the Exchequer Rishi Sunak. The Chancellor announced that both the nil-rate band (NRB) and residential nil-rate band (RNRB) will be frozen until April 2026, resulting in the NRB remaining at £325,000 and the RNRB at £175,000 during this time.

In practice, more and more people will find themselves with an IHT issue as asset prices rise with inflation and IHT allowances remain fixed. Some have referred to these measures as a ‘stealth’ tax mechanism that will, over time, bring significant tax receipts for the Treasury.

Concern is beginning to grow over the possibility that IHT and CGT liabilities could be increased as the government continues to consider its options to recover debt incurred by the pandemic.

One proven, simple solution to mitigate potential IHT, and also benefit from ongoing capital growth, is through investment in the shares of qualifying AIM companies.

You can find out more about the benefits of investing in AIM for IHT planning purposes in our free report available from the link here.

AIM, London’s growth market, has materially outperformed the UK main stock market for a number of years, reflected in the very strong performance of AIM for IHT planning portfolios.

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.

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.

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.

It is not long until the end of this tax year. This is always a good time to sit down and assess your financial situation and evaluate your existing ISAs.

Many people consider switching their ISA provider due to poor performance or a lack of expert guidance and switches often occur towards the end of the tax year to make use of any remaining ISA allowances going in the new financial year.

Why should I transfer my ISA?

There are a few key reasons you might want to transfer an existing ISA between providers. These include:

Performance

Performance is key. If your ISA is not performing, it might be time to move it. Keep an eye on the performance of your provider relative to its peers and regularly weigh up whether better returns could be found elsewhere.

Performance over recent years would certainly have been enhanced if your ISA had been invested in AIM shares, with the FTSE AIM Index yet again massively outperforming the main UK stock market.  Our Blog here covered AIM’s outstanding performance in 2020.

Cost

This is another key factor when deciding who manages your ISA. It is important to compare the costs you are paying for your ISA against those you would be paying with another manager.

Service

Not all wealth managers offer the same level of service. You might be looking for a provider who you can talk to directly when needed and not a call centre or mailbox. There are plenty of reasons you could be happier with a new provider.

Consolidation

Having your ISAs in one place can help you take advantage of fewer costs standalone costs for administration. It is also easier to keep track of your progress with everything under one roof.

Does transferring affect my ISA allowance and is there a limit on how much I can transfer?

Transferring an ISA to another provider will have no impact on your allowance for that tax year. The £20,000 limit is consistent across all providers and part of the transfer process includes sending your contribution history.

An ISA transfer lets you move money built up in previous years to a new provider without losing the tax-free status of that money. There is no limit on the amount or share of previous years ISA money that can be transferred. You can transfer all or part of it.

If you are transferring an ISA with contributions made in the current tax year, you will have to transfer the whole amount of those contributions. This is essentially to stop you having contributed to two separate ISAs of the same type within the same tax year.

How do I transfer an ISA?

Transferring an ISA is easier than you might think. Initiating an ISA transfer can be as easy as requesting it from your new provider. You will be asked to fill out a short form, which is then signed and sent back to the new provider. From there, they will liaise with your current provider to make the transfer happen.

ISA Transfer Form

You will need to complete this form before you are able to move your money. This may be a form that is included on their website, on a platform or they may be directly in touch with you to sort out the details.

Do not withdraw this money to move it. Doing this will void the tax-efficient status of your savings and it will count against your tax-free allowance if you choose to reinvest in an ISA. If you are transferring from one Stocks and Shares ISA to another, then you should have the option to move the investments you hold to your new provider without selling them. This is often called an ‘in specie’ or ‘re-registration’ transfer.

Transferring

This is when your new provider moves the money away from your old provider. The process can take from 4-6 weeks but there is nothing for you to do here. Your new manager will manage this process on your behalf.

Transferring to an AIM ISA brings more than CGT and Income tax benefits. AIM shares also bring 100% mitigation from Inheritance Tax if held for two years and until death.

 

You can find out more about Fundamental Asset Management’s high performing AIM Inheritance Tax ISA portfolio, which has been delivering exceptional investment returns for more than 16 years, from the link here. We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and platform partners.

Derek McLay

Business Development Manager

Fundamental Asset Management Ltd.

The Chancellor of the Exchequer Rishi Sunak recently delivered his spring Budget setting out the Government’s plans for taxation and spending for the upcoming financial year. This contained several important measures aimed at restoring control of public finances gradually and to tackle the ongoing challenges brought about by the coronavirus pandemic.

But what does it mean for Inheritance Tax?

Business Property Relief

Much of this discussion prior to the budget was focussed around the rules on Business Property Relief. Business Property Relief allows an investor to achieve 100% mitigation from Inheritance Tax on Business Property Relief assets held for two years and until death.

Not every business qualifies for Business Property Relief, but shares in a qualifying company listed on AIM, the growth market of the London Stock Exchange, do. We have been successfully managing AIM Inheritance Tax portfolios since 2004, significantly outperferming the AIM Index.

Mr Sunak made no changes to the rules on Business relief which seems in line with his position to support small businesses. Our report available from the link here and below explains more about Business Property Relief.

Personal Tax Thresholds

One area where Rishi did cover Inheritance Tax was in his decision to freeze all personal tax thresholds until 2026, including Capital Gains Tax, Income Tax, Inheritance Tax and the Pensions allowance.

The Inheritance Tax threshold freeze includes both the nil rate band and the residential nil rate band.

These thresholds were expected to rise with inflation as an individual’s income increases, but as this will no longer be the case, more individuals will find themselves with an Inheritance Tax issue on the horizon as they move towards 2026.

One simple and popular Inheritance Tax planning solution remains an AIM Inheritance Tax (‘IHT’) portfolio which will give full IHT mitigation after only two years while also enabling the investor to retain access to funds. An AIM IHT portfolio can also sit within an ISA.

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 16 years, from the link here. We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.

Join us for our webinar at 2pm on 25^th March 2021 where we will be discussing Are AIM tax reliefs at risk? You can register from the link here.

Individual Savings Accounts (ISAs) were launched in 1999 and have become one of the most popular saving tools for investors at all stages of investing whether saving for a first home or for retirement. 11.2 million adults subscribed to ISAs in 2018-19, up from 10.1 million the year before (Source: HM Revenue & Customs).

So why are so many people interested in ISAs?

There are several benefits of using an ISA allowance.

Subscribers can invest up to £20,000 each year, free from income and capital gains tax on investment growth. In addition to this, ISAs benefit from instant access, which is particularly useful for those who do not want to lock away their savings using other methods such as through a pension. ISAs can be held on platform which allows investors to take advantage of wider investment options. This explains why ISAs are one of the most popular ways for retail investors to benefit from tax-efficient investing.

How can ISAs help my client’s intergenerational tax planning?

The tax year for 2020/2021 will end on 5th April at which point next year’s allowance will apply and any allowance not used from the previous year will be lost.

We have heard from advisers that many clients are reluctant to invest due to uncertainty stemming from the current market environment. The tax incentives for an ISA investor can give an extra level of incentive which goes a long way to reassure clients on whether subscribing into an ISA before this year’s cut off is a sensible decision to make. Furthermore, it is not necessary to invest the ISA subscription immediately and cash can be held on account if clients are reluctant to commit to the stock market at this point.

Investing in rapidly growing companies on AIM

Since 2013 ISAs have been permitted to hold shares in companies listed on AIM.

AIM has developed into one of the most successful growth markets in the world, with the AIM index significantly outperforming the main UK stock market over recent years.

The shares of qualifying AIM companies can also benefit from 100% relief from Inheritance Tax, offering a further tax planning attraction.

Making sure clients are taking advantage of their annual ISA allowances is one of the best methods for a client to protect their legacy in a tax efficient way for the next generation.

Derek McLay

Business Development Manager

Fundamental Asset Management Ltd.

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 16 years, from the link here. We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.