An alternative approach to Inheritance Tax planning

Tax planning is becoming more and more important, as the tax levy imposed by the Government increases to pay off the national debt.

Inheritance tax is one of the most unpopular taxes as people understandably resent the Government taking money away from loved ones when passed on through an inheritance.

With property values remaining relatively high, more and more people have found that the value of their estate is higher than the Inheritance Tax (IHT) exempt threshold.

IHT may be mitigated by giving money away or putting it into trust but the principal drawback of these solutions is that access to the capital is lost ¬ a very high price to pay.

Furthermore, it is likely that some or all of the benefits could be lost if the donor were not to survive for seven years.

A more flexible way of mitigating IHT and maintaining access to capital is by using Business Property Relief (BPR).

Following changes made by the 1996 Finance Act, the values of assets that qualify for BPR are currently disregarded for IHT purposes, so long as they have been held for at least two years before death.

Because most AIM listed shares qualify for BPR, investing in a portfolio of AIM shares can quickly mitigate Inheritance Tax for those willing to accept the risks. AIM is the junior London market and as such attracts smaller, higher risk companies. On the plus side, if capital is required as a result of unforeseen circumstances, all the securities can be sold (subject to the money from them once again forming part of the estate). A bit like having you¹re cake and eating it too.

Given the risk reward ratio of investing in such securities it is highly advisable to delegate the management of such a portfolio to professionals.

Hargreave Hale¹s Inheritance Tax Portfolio service is managed by Richard Hallett, a key member of our smaller companies investment team who are well regarded in the investment management industry and led by the highly experienced and award winning Giles Hargreave.

Always bear in mind that tax treatments depend on individual circumstances and may be subject to change in the future

Dudley Warnes
Hargreave Hale