lumin news Issue 6 / Autumn 2022

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Page 8 lumin news 6 / autumn 2022 How to reduce your inheritance tax liabilities with Business Relief Legacy and succession matters are often pushed down the road and left to a ‘more convenient’ date, due to the emotional barriers involved in dealing with the subject. When the planning horizon is shorter, Business Relief offers individuals with large estates a way of investing that can lower potential IHT liabilities. NEVILLE PEREIRA Senior Financial Consultant neville.pereira@luminwealth.co.uk Phone 02039 887 788 Making lifetime gifts to loved ones can be an effective estate planning strategy. However, gifting comes with two major drawbacks. The donor must survive for seven years (otherwise larger gifts still form part of the estate), while you also lose control over gifted assets. Using a trust often involves similar disadvantages. Business Relief provides access to assets, allows you to maintain control, and only requires a holding period of at least two years at the time of death. Making use of IHT exemptions It’s commonly known that a married couple with a family home can often leave up to £1,000,000 free from inheritance tax (IHT) to children/grandchildren. Exemptions are equally important. Pensions feature outside of the estate for IHT purposes, while other potentially exempt assets include agricultural land, stocks quoted on the Alternative Investment Market, Reducing IHT liabilities with Business Relief Assumptions: Married couple with full nil-rate bands available (£1,000,000); surviving for a two-year period. and Business Relief qualifying investments. There is no IHT exemption available if the Business Relief investment is not held at the time of death. What is Business Relief? Business Relief was introduced in 1976 to allow small (family) businesses to be passed on through generations without facing an IHT liability. It has since widened in scope and become an incentive to boost investment in UK businesses. Companies need to be private or quoted (but not listed on the London Stock Exchange) and carry out a qualifying trade. Mining, investment and property companies do not typically qualify. Inclusion in estate? Now After 2 years Family home Yes £1,000,000 £1,000,000 Pensions No £1,000,000 £1,000,000 ISAs Yes £800,000 £300,000 Savings Yes £200,000 £200,000 Business relief No 1 – £500,000 Total wealth £3,000,000 £3,000,000 Tax-free allowance £1,000,000 £1,000,000 Taxable estate £1,000,000 £500,000 Potential IHT liability £400,000 £200,000 1 After 2 years £200,000 lower IHT liability Potential benefits As well as being IHT-exempt after two years, control and access can be retained. Due to the private nature of the assets, it may take a number of weeks to get your money back. The two-year clock does not reset if your shares are transferred to a spouse or civil partner, or if they are switched to another qualifying investment. No medical underwriting is required and there are no complex legal arrangements. Different investment solutions Business Relief solutions invest in a range of tangible investments, including infrastructure, transport, energy, and/or lending to SMEs. Businesses usually have long-term revenue streams and operate in protected markets. SME loans typically have short maturities and liquidity upon repayment. While there are different solutions across Business Relief providers and products, investing in small companies is risky. You could lose all of your allocated capital and should have a high risk tolerance, at least for this portion of your wealth. Cutting IHT liabilities The example (left) shows how a married couple could cut their IHT liabilities using Business Relief, after surviving for a two-year period. Costs and charges Business Relief products come with higher costs than mainstream investments, due to the greater need for providers to conduct due diligence on behalf of Business Relief owners. Costs should be viewed within the context of the wider estate planning benefits that are delivered. Would you like to discuss your estate planning options? Book a complimentary first meeting on 03300 564 446. FACTSHEET Estate planning with Business Relief Request a free factsheet via enclosed response card, info@luminwealth.co.uk, or call the team on 03300 564 446
lumin news 6 / autumn 2022 Page 9 Ask our Expert Your financial planning questions answered Joe Fisher responds to readers’ questions on pensions and tax. Here he looks at the family home IHT allowance, pension consolidation, the additional spousal ISA subscription, and private residence relief rules. JOE FISHER Financial Planning Manager joe.fisher@luminwealth.co.uk Can we use the main residence allowance to mitigate the tax bill on our family home? Your parents disposed of the family home in 2016, before the residential nil-rate band was introduced in April 2017, and moved into care. They passed away in 2021. The residential nil-rate band now adds up to £175,000 onto the standard nil-rate band of £325,000 per person if the family home is passed down to direct descendants. This means that a married couple could have a combined inheritance taxfree allowance of up to £1,000,000, if their combined nil-rate band allowances have not been eroded by gifting. The residential nil-rate band is also available when a couple (or individual) downsize or cease to own a home on or after 8 July 2015 and If you sell your own home at a profit, the gain is tax-free if it is your sole or main property. This is known as private residence relief. The capital gains tax exemption can be complicated if you own multiple properties and/or have not lived in your main home for long periods during ownership. Certain absences are permitted under the private residence relief rules. Working abroad is one such example, provided that you lived in the property before and after your absence, and you have no other property that qualifies for private residence relief. There is no limit on the length of absence due to time spent working abroad. If you own more than one corresponding assets are passed onto children or grandchildren. There is no automatic entitlement to this so-called downsizing addition. The legal personal representatives need to make a claim and nominate the property asset disposal to be taken into account via form IHT435. The claim time limit is usually two years after death. FACTSHEET Top tips on IHT/ estate planning Request a free factsheet via response card, info@luminwealth.co.uk, or call Joe Fisher on 03300 564 446 Do I have to pay capital gains tax on the sale of my UK home if I’ve worked abroad for 10 years? FACTSHEET Top tips on capital gains tax Request a free factsheet via response card, info@luminwealth.co.uk, or call Joe Fisher on 03300 564 446 property that qualifies for private residence relief you should elect which home will be your main private residence within two years of acquiring an additional residence. Rules around private residence relief can be complicated, and I would recommend seeking expert advice. For official information from gov.uk visit https://bit.ly/3QzulmB Should I consolidate my old pensions? Combining multiple pension schemes into one ‘mothership’ plan allows you to set one ‘master’ investment strategy that matches your risk profile and retirement goals. Some of your old pension plans may also not offer flexiaccess drawdown. Consolidating your plans into a single scheme that offers flexi-access drawdown will enable you to access your savings more flexibly. However due care should be given to existing pension benefits. These may include valuable safeguarded benefits that would be lost on transfer. What happens to my deceased spouse’s ISA? The full ISA portfolio value can be transferred from a deceased spouse using the Additional Permitted Subscription to a surviving spouse without affecting their annual contribution allowance of £20,000 per tax year. Unlike pensions, which are subject to a lifetime allowance ceiling, there is no cap or account value limits for ISAs. This means that ISAs benefit from completely tax-free growth and capital withdrawals. The Additional Permitted Subscription boosts the tax-efficiency of your investments. FACTSHEET Make the most of your ISAs Request a free factsheet via response card, info@luminwealth.co.uk, or call Joe Fisher on 03300 564 446
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lumin news Issue 6 / Autumn 2022

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