Business Property Relief (BPR) is a statutory relief that provides 100% relief from Inheritance Tax (IHT) for investors who are holding shares in qualifying businesses, and have done so for at least two years, upon their death.
A number of investment managers offer consumers investment solutions that benefit from BPR.
Awareness of BPR remains very low yet once the relief is explained, our clients have been very interested. Many had not heard of BPR before, so when we introduce it to our clients and explain the benefits, they react very positively. It is an option that has been around for a while but has not scratched the surface of the mass market – the additional risk excepted.
Politically, BPR does seem set to stay with us, at least under the current political administration. While there have been changes to the EIS and VCT regimes the only direct change to BPR has been positive: the extension of Entrepreneur’s Relief to include BPR qualifying investments.
In addition the Conservative government has sought to extend IHT reliefs rather than curtail them, with the introduction of the new residence nil rate band (RNRB).
BPR is one of the smallest IHT reliefs claimed by estates, dwarfed by the nil rate band, transfer to a spouse or civil partner and gifts to charity. It is not a big drain on HM Treasury and in fact as a relief that encourages investment into smaller companies, BPR could ultimately be a net contributor to the public purse through the taxes those firms and their employees pay.
The BPR sector has responded to increased demand by developing new propositions, and there are currently numerous open offers in the market.
In contrast to the historical picture, some of the newest offers to come to market have more focus on providing growth in addition to capital preservation.
It could be fair to speculate that this change is down to an increasing number of clients who want to undertake some estate planning without either sacrificing returns or gifting away their assets, as part of overall planning for extended retirements and longer lives.
The annual returns the investments target are on the rise and a target annual return in excess of 4% per cent is now not uncommon. In addition, many of the new offers are project based: the investment provides capital for large-scale construction projects such as renewable energy installations or infrastructure projects.
These investments tend to have low levels of diversification and may only invest in one or two projects, but as they are ‘asset rich’ they are perceived to be less risky due to their high liquidation value, which aims to satisfy the capital preservation mandate of these offers even in worst case scenarios. Other popular sectors for BPR qualifying investments include renewable energy, there are some open investments at the moment and unlike EIS and VCTs, BPR qualifying investments can still include schemes which benefit from feed-in-tariffs or renewable obligation certificates.
Financial services is another common sector, with investments typically being made into firms who extend loans to low risk, creditworthy borrowers such as asset-backed property developers.
Lasting Power of Attorney
BPR can also be one of the few options available where a lasting power of attorney is in place. Attorneys cannot easily gift money away, so more conventional estate planning options are out of bounds, but attorneys can make investments on behalf of the donor, including investments into BPR qualifying companies.
Note: Care needs to be taken to ensure that the power specifically authorises the attorney to appoint a discretionary investment manager and delegate their responsibility to a third party.
There has never been a greater need for estate planning, and at Optimum we consider all the available options, including BPR qualifying investments.
If you want to know more or are looking for advice with Estate Planning including BPR products please contact Optimum. Your local specialist Independent Financial Adviser.