For clients trying to mitigate IHT, but not willing or able to take higher levels of investment risk, there are alternatives. Many specialist companies design structured investments that offer clients BPR relief, but with lower volatility and returns uncorrelated to equities. They do this by investing in asset-backed trades such as renewable energy farms, forestry and commercial lending. The aim of these schemes is to mitigate a 40 per cent IHT liability, not yield high investment returns. Typically clients might expect a return of three per cent a year.
The biggest disadvantage with using BPR for IHT planning is what happens if your client dies before two years have passed. Life assurance is one option, but what if your client is in ill health or advancing years, making the cost prohibitive?
One innovative product in the marketplace now offers clients the opportunity to insure the risk in the first two years by using a group life assurance policy. Another will rebate any accumulated annual charges and waive the exit dealing fee on death within the first two years and rebate the initial fee if death occurs in the first three months. Yet another helps estate administration by participating in the direct payment scheme, allowing executors to instruct payment to HMRC directly from the investment to speed up probate. We can certainly expect further differentiation and development in this area.
It is important to note that all of the products highlighted come with charges, some of which are significant. Advisers need to ensure clients understand the cost to enable assessment of the most suitable option.
There is a broad range of IHT solutions and often the client’s objective will be met by a combination of those solutions. IHT, in whatever form it takes, will continue to be an emotive issue. Talking about the range of products available and tailoring a solution to meet the client’s objective is more important than ever before.
Rebecca Williams is a chartered financial planner and client director of Brown Shipley
Key points
Discounted gift trusts and gift-and-loan trusts are tried, tested and effective IHT planning tools.
On death, Aim investment also offers spouses and civil partners the opportunity for a second bite at the cherry.
EIS are high-risk investments, although there are varying degrees of risk.
