For adviser use only. Estate planning The use of AIM IHT Investments

Transcription

1 For adviser use only Estate planning The use of AIM IHT Investments

2 Contents 01 A growing market 02 Key benefits 04 Key risks The information in this document is intended as a general guide and is not a substitute for expert individual financial advice. Laws and tax rules may change in the future. The information here is based on our understanding in September Your personal and company circumstances will also have an impact on tax. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this document.

3 A growing market AIM investments designed for IHT mitigation invest in shares that qualify for Business Property Relief (BPR). Shares must be held for at least two years and at death, after which BPR qualification is assessed by HMRC for every case. Although the AIM market is considered higher risk, there has been increasing demand following rule changes in 2013 which permitted AIM investments to be held within an ISA. As clients retire, their financial planning objectives are likely to change with greater consideration given to estate planning. Gifting assets to their beneficiaries can however be challenging, as clients also need to retain access to their capital to plan for a retirement that could be 20 to 30 years or even longer. Conventional estate planning solutions such as gifts and trusts are likely to remain the most suitable option for many clients but AIM investments may be right for some clients. Although considered high risk, holding part of a client's portfolio in an AIM investment may be suitable for inheritance tax (IHT) planning where the client has sufficient capacity for loss. The AIM market is first and foremost an investment solution rather than a tax solution. It is also considered a higher risk investment and you should ensure the client has sufficient capacity for loss. Alternative solutions may provide the right customer outcome. Estate Planning The use of AIM IHT Investments 01

4 Key benefits There are a number of reasons why clients may benefit from investing in AIM shares as part of their IHT planning. Time horizon In contrast to traditional estate planning where the client must survive for seven years, BPR qualifying AIM shares need only be held for two years, and at death are expected to qualify for IHT relief subject to a HMRC assessment. Access Clients, with sufficient capacity for loss, who do not wish to gift their money can invest in an AIM portfolio and retain full access to their capital. Clients with large ISA holdings ISA holdings form part of your clients estate on death meaning IHT may be payable on their value. From 2013 it became permissible to hold AIM shares in an ISA, so reinvesting Stocks & Shares ISA or Cash ISA holdings into an AIM portfolio may support IHT planning if clients have substantial ISA holdings. Older clients with no IHT planning in place or where existing plans are insufficient For clients in later life, the requirement to have held AIM shares for only two years at death to benefit from an IHT exemption may prove attractive in contrast with making a gift which must have been made seven years prior to death to qualify for IHT exemption. Clients in poor health Unlike discounted gift trust, there are no underwriting requirements. Of course it is worth remembering that there are a range of trust options, including loan trust and gift trust, that don t require any underwriting. Where clients do not want to use a trust Aside from medical underwriting and surviving seven years, some clients may think setting up a trust is complex and not want to incur the costs of doing so. A trust can help protect clients assets both now and in the future, so that their assets are distributed in line with their wishes. Standard Life offers a range of trusts that provide flexibility, control and tax efficiency. There is no charge to access the Standard Life trust solutions. If clients don t want family members acting as trustees we can also offer access to a professional trustee service. This service would be offered by 1825 Client Services and it would be subject to a charge. Business owners who are looking to sell, or have sold their business within the last three years Where a client s business is sold for cash, the proceeds immediately form part of their estate for IHT purposes. Where the business assets qualified for BPR, and were held for two out of the last five years, subsequent reinvestment into BPR qualifying AIM shares will mean the two-year clock for BPR qualification does not have to be reset. Lasting power of attorney A lasting power of attorney imposes significant limitations on making lifetime gifts. Providing they have the appropriate financial powers, they can make an investment on behalf of the donor into a portfolio of BPR qualifying AIM shares for IHT planning. It is worth remembering that the attorney has a duty of care to the donor and they must act in the best interests of the donor at all times. The attorney should only consider an AIM investment when it is clear this solution will deliver the right outcome for the donor. 02 Estate Planning The use of AIM IHT Investments

5 A trust can help protect clients assets both now and in the future. Estate Planning The use of AIM IHT Investments 03

6 Key risks Among the main risks to consider are: Business Property Relief is not guaranteed Following the death of a client, HMRC will assess the case to establish whether the AIM shares qualify for BPR. If one share does not qualify this does not disqualify the whole portfolio. Capital is at risk The performance of AIM company shares can be more volatile than those of larger companies, and as a result there is a risk that the value of your investments may go down as well as up, so you may get back less than you invest. 04 Estate Planning The use of AIM IHT Investments Tax legislation is subject to change Tax legislation and HMRC practice are always subject to change, meaning the BPR qualification on AIM shares cannot be guaranteed to continue. Tax treatment is also based upon individual circumstances. AIM company shares The shares of AIM listed companies may at times prove difficult to buy or sell. This may delay the payment of any withdrawals. Suitability considerations Investment in BPR qualifying AIM investments should not be regarded as a core holding. They should be considered as part of an overall tax planning strategy where IHT planning is required for clients. There are a number of client considerations that should be taken into account as to whether an investment into BPR qualifying AIM investments are suitable. These could include: Age of the client Other tax planning solutions available Existing investment portfolio Time horizon Attitude to risk Capacity for loss Knowledge and experience Suitability considerations are likely to focus on 2 key elements; 1. Ensuring that the client fully understands the risks involved in investing in AIM shares 2. Ensuring that potential IHT exemption does not overrule the need to properly assess clients attitude to risk For the majority of clients, it is unlikely that AIM investments will be used exclusively and are likely to complement conventional estate planning solutions. Due diligence Assessing and comparing AIM IHT portfolio managers will form an important part of your process. As part of your due diligence you may consider asking: What is the firm's experience managing AIM investments? Have any shares ever failed to qualify for BPR? What is their process for the control and management of risk? What are their portfolio risk measures, eg volatility, maximum loss, maximum drawdown Request a full breakdown of all charges, including platform charges for platform based models Where are the charges taken from? Do AIM shares have to be sold to raise liquidity? What is their investment process? How quickly are monies invested (to allow the two year clock to start)? How often are the investments rebalanced and what is the stock turnover history? What is the availabilty of the investments on your platform? AIM investments availability on Wrap Standard Life Wrap offers access to managed portfolios from a wide range of Discretionary Managers, some of which have made AIM investments available for IHT planning. A list of all of the Discretionary Managers available via Wrap can be found on the Wrap section of Adviserzone. Please use the contact details provided for your selected Discretionary Manager to enquire about their AIM investment availability.

7 Estate Planning The use of AIM IHT Investments 05

8 Standard Life Savings Limited, provider of the Wrap Platform, is registered in Scotland (SC180203) at 1 George Street, Edinburgh, EH2 2LL. Standard Life Savings Limited is authorised and regulated by the Financial Conduct Authority. WRAP Standard Life Aberdeen, reproduced under licence. All rights reserved.