IHT, ISA's and BPR - We live in a world of acronyms, and we are seeing an increasing use of these three.
We at Blackdown Financial seem to be spending more time helping and advising clients in respect of their potential Inheritance Tax (IHT) liability, and how to reduce or completely negate it.
Inheritance tax intake is expected to rise sharply over the next five years, according to the latest forecast update from the Office for Budget Responsibility (OBR). In its ‘Economic and fiscal outlook’, the amount of inheritance tax forecast for collection is expected to top £6.2 billion by 2021-2022
Latest Inheritance Tax revenues forecast in £ billions
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
£4.7 £4.7 £5.0 £5.2 £5.5 £5.8 £6.2
Source: Office for Budget Responsibility, Economic and Fiscal Outlook, March 2017
Commonly referred to as ‘Death Tax’, this is considered by many to be a voluntary tax, with careful planning it can be avoided by many.
At the end of 2015-2016, the market value of Adult Individual Savings Accounts (ISA) holdings was £518 billion, split between ‘Cash ISAs’ (52%) and ‘Stocks and Shares ISAs’ (48%). Six million of the UKs 23 million ISA holders are aged over 65 years old. There are also more than 500,000 people with ISAs valued at £100,000 or more, these could very well be at risk from the ‘Death Tax’ because the ISAs will be treated as part of their taxable estate, many incorrectly assume their ISAs fall outside the IHT calculations.
One way of approaching potential IHT liabilities, is investing in Business Property Relief (BPR)qualifying investments. Shares in BPR qualifying investments become exempt from IHT after just being held for 2 years, provided the shares are still held at the time of death.
Since 1996, estates have been able to claim 100% BPR on minority investments made in certain trading companies. ISA rules were changed in 2013, as a result ISAs can now be invested BPR qualifying companies and therefore benefit from IHT exemption as well as tax-free income and growth.
If you are concerned or irritated by the potential payment for IHT, then perhaps looking at ISAs into BPRs is an option. There are various other strategies to available, and seeking professional advice on these matters is vital.
Lee Tomkins BSc(Hons), DipPFS, Certs CII(MP&ER), Cert CII (Life and Pensions)
Independent Financial Adviser
N.B. This article should not be considered investment advice or an offer of any product for sale, it contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular, strategy or investment product. Information contained has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not an indicator of future results.