Inheritance Tax Portfolio Service

Transcription

1 Inheritance Tax Portfolio Service

2 CONTENTS How AIM shares can reduce IHT 5 Business Property Relief and other taxes 6 Example of IHT savings 7 Portfolio construction and strategy 8 Investment criteria 9 Administration of your portfolio 11 Important information 12 Contact details 13 While a Blankstone Sington Inheritance Tax (IHT) Portfolio can provide an effective solution to mitigate IHT, it may not be suitable for everyone. The value of the portfolio can go down as well up and you may not get back the full amount originally invested. Any investment in the portfolio should be viewed over a long term horizon. Investments within the portfolio may be illiquid (difficult to buy or sell particularly within a short period of time). Any references to tax laws or levels in this brochure are subject to change and depend upon your personal circumstances. 2 February 2017

3 INHERITANCE TAX RECEIPTS Despite the introduction of the Residence Nil Rate Band, IHT receipts are forecast to rise to 5.6bn in from 4.56bn in Office for Budget Responsibility 6.0bn 5.0bn 4.0bn 3.0bn 2.0bn 1.0bn 0.0bn

4 time to plan 4 Ron Davies 2016

5 HOW AIM SHARES CAN REDUCE IHT Blankstone Sington s Inheritance Tax Portfolio provides a simple approach to shelter part of your estate from IHT, with the potential for capital growth. OBJECTIVE OF AN IHT PORTFOLIO KEY BENEFITS The main objective of using an IHT portfolio is to secure Business Property Relief (BPR) against inheritance tax for private individuals by investing in a range of qualifying companies. Upon death, Inheritance Tax (IHT) is currently levied at a rate of 40% on all assets exceeding a total value of 325,000. A common approach to reducing IHT often involves setting up a trust. However, this can prove an expensive and time-consuming exercise and requires the individual to live a further seven years to avoid any IHT charge. There is also the possibility of the individual losing access to their investments, which may present difficulties if their circumstances change. An IHT Portfolio provides an alternative solution for individual investors with the opportunity to obtain full IHT relief after two years, and enables investors to maintain control of their assets. WHAT IS AIM? AIM (formerly the Alternative Investment Market) was launched in 1995 and is a sub-market of the London Stock Exchange. The total market value of all companies listed on AIM is approximately 80bn. Qualifies for 100% IHT relief after just two years. Flexible solution with no lock-ups or penalty charges to withdraw early. Investment in a diversified portfolio of some of the fastest growing and entrepreneurial businesses listed in London. As well as potential capital growth the portfolio can provide some income from dividends which can be used to pay management fees. Highly competitive and transparent charging structure. Expert research and management of your investments through our in-house team. Minimum Portfolio of 50,000 with no maximum. It is primarily intended for young and growing companies and provides an ideal environment for these businesses to access the capital and liquidity of the London markets. AIM offers a lower cost and more flexible regulatory framework designed specifically for the needs of growing companies. The size of companies listed on AIM varies greatly, with many companies being very small (perhaps just a few million pounds in terms of market capitalisation) to larger companies whose market capitalisations are above 1 billion. 5

6 BUSINESS PROPERTY RELIEF AND OTHER TAXES BUSINESS PROPERTY RELIEF REPLACEMENT PROPERTY Any share in a company that is unquoted, carries on a qualifying trade and has been held for two years or more at the date of death, will benefit from 100% BPR, i.e. its value is effectively disregarded for IHT purposes. Shares in companies traded on AIM are currently recognised as unquoted shares for tax purposes. Not all shares listed on AIM will qualify for BPR. Essentially the AIM listed company needs to be a trading company, meaning that its business must not be wholly or mainly that of: Dealing in securities, stocks and shares Dealing in land or buildings Making or holding investments (unless that of a market maker or discount house) If shares in a company are sold the proceeds can be re-invested into shares in another qualifying company to maintain the relief from IHT provided that: 1. The whole of the proceeds have been used to purchase the replacement shares; and 2. The original and replacement shares have been held for a total period of at least two years out of the last five years. If the shares have been inherited from a spouse, then the spouse s period of ownership can be added to the period held by the new investor, in computing the two year holding period. OTHER TAXES BPR will not be available to the extent that the company has any assets that: Have not been used wholly or mainly for the business in the previous two years (or since acquisition if shorter); or Are not required for the future use of the business. Any cash held in the portfolio at the time of death will not qualify for IHT relief. The required two year holding period applies to each individual investment, not the portfolio as a whole. Dividends received are liable to income tax in the normal way. A dividend allowance of 5,000 a year is available to all taxpayers. The rates of tax on dividend income above the allowance are 7.5% for dividend income falling within the basic rate band, 32.5% for dividend income falling within the higher rate band and 38.1% for dividend income falling within the additional rate band. Gains on AIM shares are liable to Capital Gains Tax (CGT) in the normal way, charged at 10% (for basic rate taxpayers) and 20% (for higher rate and additional rate taxpayers), on aggregate gains in a year in excess of the annual exemption. AIM shares may be held in an Individual Savings Account (ISA). This offers the potential for investors to hold shares that are exempt from income tax, CGT and IHT. The purchase of AIM shares is exempt from stamp duty, saving 0.5% of the purchase value. Taken together, the various benefits make AIM one of the most tax advantageous markets. 6

7 EXAMPLE OF IHT SAVINGS MRS JONES RETAINING CONTROL Mrs Jones is 78 years old with assets, comprised of her house and savings, worth 1m. She is investigating ways of reducing the inheritance tax payable on her estate and is interested in investing in an IHT portfolio to mitigate the tax bill. It is assumed that she has no reliefs or allowances available. If Mrs Jones takes no action the inheritance tax bill would total 270,000. However, if she invested 200,000 into the Blankstone Sington Inheritance Tax Portfolio, this amount, plus any capital growth, would fall outside of her estate for IHT purposes after just two years. Mrs Jones retains full control over the portfolio allowing her total flexibility should circumstances change. If, for example, Mrs Jones decides to withdraw cash from the portfolio before she dies, she can do so without disturbing the inheritance tax relief on the remaining amount invested. In other words there are no penalties imposed for early withdrawal (other than the loss of IHT relief on the amount withdrawn). Under normal market conditions proceeds will be received within 5 working days. Without IHT Portfolio With IHT Portfolio Estate 1,000,000 1,000,000 Less IHT Portfolio 0 ( 200,000) Less Nil rate band ( 325,000) ( 325,000) Estate liable to IHT 675, ,000 Less: IHT (at 40%) 270, ,000 Residual value of estate 730, ,000 Mrs Jones estate would have saved 80,000 in IHT by investing 200,000 in the Blankstone Sington IHT Portfolio and holding the shares for at least two years prior to death. Please note that the rate of IHT, the amount of the nil rate band and the available exemptions could change and the value of the IHT saving depends on the circumstances of the investor. 7

8 PORTFOLIO CONSTRUCTION AND STRATEGY We have been successfully investing in smaller companies for over three decades, and in our Inheritance Tax Portfolio since 2010, through our specialist in-house research department and highly experienced portfolio managers. PORTFOLIO CONSTRUCTION STRATEGY We believe that the higher risk nature of investing in AIM shares makes it essential to use a well diversified portfolio. Every portfolio is built specifically for each client and will contain between 25 and 40 holdings, spread across industry sectors, which we believe will deliver attractive returns over a 2-5 year period. Whilst this will not eliminate all risk it will help moderate the approach. ACTIVE MANAGEMENT Due to the nature of investment in this area, which will on occasion require decisive action, we only offer our Inheritance Tax Portfolio on a Discretionary Managed basis, meaning that the management and administration is delegated to us. We seek to identify undervalued companies or those that offer growth at a reasonable price; a dual strategy that we believe serves investors well over the medium to long-term. This style is more towards the value end of the investment spectrum rather than speculative growth. By having a value bias, we are trying to limit the downside risk to capital, as far as possible, while retaining good upside potential. This focus on capital preservation means that we avoid the more speculative and volatile companies, in favour of sound and sustainable business models that are best served to deliver shareholders returns across various market cycles. Our research department identify companies that are suitable for an IHT portfolio. These companies are regularly reviewed with new companies added when opportunities arise. Companies will be sold if: they move to the main market; they become ineligible due to takeover; their prospects deteriorate; or our analysts determine that the shares have become expensive with better relative value to be found elsewhere. No guarantee can be given that HM Revenue & Customs will grant BPR on each investment selected. Each investment will be selected on the basis that it is considered, by Blankstone Sington, in good faith, to be a company qualifying for BPR, but it may not be or may cease to be. 8

9 INVESTMENT CRITERIA When identifying investments we look for those companies that exhibit certain desirable attributes. These include: We consider that risk is a function of the price paid for stock. If investors overpay for earnings growth, risk to capital is greatly increased. Operating cashflow is the lifeblood of any business and tends to be a more robust and accurate depiction of actual business performance. Weak cashflow, relative to a company s measure of profits, can often trigger solvency or liquidity issues in the future. We prefer strong cashflow generation as it increases a firm s ability to withstand economic fluctuations. Valuation Cash Generation Dividends INVESTMENT CRITERIA Strong Management Companies must be paying a dividend, or, if they are a recovery situation, be very close to reestablishing a dividend payment Proven track record and demonstrable ability to add value for shareholders. We favour companies whose management have a stake in the business aligning their interests with shareholders. 9

10 rest assured... you re in good hands 10 Ron Davies 2016

11 ADMINISTRATION OF YOUR PORTFOLIO A comprehensive administration service is provided as part of our Inheritance Tax Portfolio. We retain this function in-house, giving us total control, which allows us to provide a flexible solution to meet your individual needs. REPORTING TO YOU ADDITIONAL INVESTMENT A contract note and an explanation of the transaction will be despatched by the end of the next business day following execution of a trade. Additionally, you will receive a quarterly valuation report listing your investments and their performance over the period. A consolidated Income Tax Certificate and Annual CGT report will be sent to you at the tax-year end. The registration and custody of your investments will be in the name of our Nominee Company - Oakwood Nominees Limited. Clients retain full beneficial ownership of the portfolio. MINIMUM PORTFOLIO To build a suitably diversified portfolio the minimum initial portfolio size is 50,000. There is no maximum limit. Once invested, you can make additional contributions of 5,000 or more at any time to your portfolio. Please bear in mind, however, that each top up will take two years from the date of investment to become exempt from inheritance tax. INCOME Given the cash generative and profitable nature of the companies we choose to invest in, the yield generated by the portfolio will generally be between 1.5% - 3%, which can be set against the annual management charge should you decide to do so. Any excess income received can be reinvested or remitted to you depending upon your preferred option. Interest is paid on any cash balances held. You can withdraw money, subject to maintaining a minimum 50,000 portfolio value, or decide to fully liquidate the portfolio at any time. Under normal market conditions the proceeds will be received within 5 working days. For larger liquidations, in times of low levels of market liquidity, a longer period may be required to ensure an orderly disposal of investments. 11

12 IMPORTANT INFORMATION RISK OF AIM COMPANY SHARES TAXATION RISKS Investment in companies listed on AIM is suitable only for investors whose attitude to risk is such that they wish to be exposed to high risk investments. Investors should only contemplate investing in AIM shares if they can afford to lose any of the capital committed. Investors should be aware that investment in AIM companies carries a higher risk than companies on the main market of the London Stock Exchange (LSE). AIM companies are subject to lighter regulatory requirements than companies listed on the LSE main market when listing and reporting. It may be difficult to obtain reliable information as to the value and the risks to which the shares are exposed. Shares in AIM companies may be difficult to sell and market makers may not be prepared to deal in them. Investment in AIM companies should be considered as a long-term investment. This document sets out our understanding of the current tax benefits that apply to investments in AIM shares. Tax regimes are liable to change and the current arrangements may not continue. This could have a material impact on investment values. The tax regulations are complex and are subject to interpretation by HM Revenue & Customs. There is a risk that stocks may not qualify for BPR or that the rules may change and the levels and basis of relief from taxation may alter or disappear. Furthermore the tax status of companies can change. The value of any tax relief will depend on the individual circumstances of the investor. Potential investors are recommended to seek professional advice about the tax implications for their particular situation. Share price volatility can typically be greater in smaller companies and the volatility of the AIM market is higher than the LSE main market. Nothing in this document should be regarded as constituting legal, taxation, investment, or other advice and prospective investors are advised to consult their financial and/or other professional advisers before contemplating any investment in the Blankstone Sington Inheritance Tax Portfolio. 12

13 IHT PORTFOLIO MANAGERS Neil Turner Joined the company in 1999 and was appointed Chief Executive Officer in January Alongside his role as CEO, Neil manages both discretionary and advisory portfolios for clients with oversight for the Inheritance Tax Portfolio Service. Stephen English Joined the company in 2002 and works as an analyst specialising in small-cap stocks for our Inheritance Tax Portfolio. Stephen holds the Chartered Financial Analyst designation which is globally recognised and attests to a holder s success in a rigorous and comprehensive study programme in the field of investment management and research analysis. CONTACT DETAILS If you wish to discuss an investment in our Inheritance Tax Portfolio, regardless of whether you are an existing client, a new investor or professional adviser, please speak to your usual account executive or to one of the key contacts detailed above. Walker House, Exchange Flags, Liverpool L2 3YL T: F: E: enquiries@blankstonesington.co.uk Telephone calls may be recorded for regulatory, legal and training purposes. 13

14 Ron Davies 2016

15 Liverpool born Ron Davies is an established commercial photgrapher with deep roots in the Merseyside area. The arrival of Antony Gormley s Another Place, the iron men of Crosby beach, in 2005 provided him with the inspiration for many of his images of Liverpool and the Sefton coast.

16 Blankstone Sington Limited Walker House, Exchange Flags, Liverpool L2 3YL T: F: E: Registered in England No Authorised and Regulated by The Financial Conduct Authority No