Here at Para-Sols we’ve seen a noticeable increase in the amount of cases focusing on inheritance tax planning. In our latest blog, Simon discusses the use of IHT schemes and their merits.
In 2016/17, IHT receipts were £4.8bn, a 4% increase from the previous year and the highest level under the current system. This creates a dilemma for many of the ageing population, when you consider the ever-rising cost of long-term care and the number of people in care expected to double by 2035.
As a result, the exercise of gifting money into either a trust or directly to an individual or family members is not an attractive one to some, as control over assets/capital is important in the event of long-term care being required.
Whilst there isn’t a ‘one size fits all solution’, the use of various IHT schemes can be a useful aid to compliment a wider IHT mitigation strategy. Previously, such schemes were almost exclusively marketed to wealthy investors, however the average minimum subscription for new Business Property Relief (BPR) investments was recently calculated at £13,810 (May 2017), as opposed to £50,000 before June 2016.
Whilst some may think exclusively of the Alternative Investment Market (AIM), and the level of volatility and risk that comes with such investments when considering IHT schemes, this is not necessarily the case. Many IHT schemes target capital preservation, with some deferring their annual fees unless the pre-determined target return is achieved (usually somewhere between 2-4% per annum).
With such investments only needing to be held for 2 years to become (potentially) IHT exempt, this can provide an attractive option, especially for the older investor. Couple that with retaining complete control over the capital, in the event funds are required in the future, such as for long-term care costs. This is a theme that seems to becoming more and more common.
Clearly, there are still risks with such investments, most notably the fact that there is no guarantee any investment will qualify for BPR, as this is only assessed upon an individual’s death. However, as part of a wider IHT mitigation strategy, such IHT schemes can provide a relatively quick and useful method of potentially reducing one’s liability, whilst retaining full control of the capital.
We come across a variety of solutions to help mitigate IHT liabilities, so as always, please just feel free to give us a call and have a chat to one of the team about potential solutions and let us help with any research you need to come up with the most suitable solution.