IHT exempt investments

[sid]

Does anyone have any experience with IHT exempt investments (after 2 years) with companies such as octopus/ deep ridge/ time /foresight ?

From what I gather, they invest in specific portfolios of companies which qualify for BPR.

These were recommended by an IFA but are there caveats? Seems a little too good to be true.

Sid

 

[Psycho Sonny]

Does anyone have any experience with IHT exempt investments (after 2 years) with companies such as octopus/ deep ridge/ time /foresight ?

From what I gather, they invest in specific portfolios of companies which qualify for BPR.

These were recommended by an IFA but are there caveats? Seems a little too good to be true.

Sid

What doesn’t qualify for Business Relief
You can’t claim Business Relief if the company:

mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments.

Doesn't sound like you would qualify for the relief tbh.

Why don't you just make Investments as per normal and anything you are going to give away above the threshold do so now.

For example let's say you own a home worth £300k, a flat worth £150k and other investments and cash worth £150k.

I'd just gift the home now and then keep the flat and other investments as they are below £325k.

The easiest way to get around IHT is to give away everything above the threshold at least 7 years before you die.

 

[sid]

The portfolio of investments by the above companies qualify for business relief as per the brochure as they are AIM listed and renewable, etc.

Gifting is not always possible based on circumstances.

 

[eviled]

Why not just pay the tax due and enjoy the knowledge your children will be in a more equitable future?

If everyone evades tax (legal or not) the world would be a grim place

 

[Pudney]

stuff

I know you're trying to be helpful, but that post was quite a funny example of getting the background to a question utterly wrong such that the advice was terrible!

@sid I don't know much about these investments and you'd probably want to speak to a properly independent IFA. My understanding is that the investments do qualify for BPR, but they tend to be in high risk companies that may not be suitable for your particular circumstances.

 

[mattx2]

The main downside on these is the poor returns vs the risk you take on. Essentially you are investing in AIM companies for less than bluechip stock returns.

To put it in perspective if you invested in this fund for 13 years and also put the same amount in a ftse tracker it would amount to the same amount paid out after IHT at 40% (based on average returns of 3% for an IHT vs 7% for the ftse tracker)

You then also have to balance that with the risk of the scheme being removed at some point which would probably create a run the assets and you would end up being lucky to get back what you put in.

Its also possible sometime in next few years the government could raise the IHT threshold taking you out of it anyway which means the investment was unnecessary anyway

You might want to look into writing a life insurance policy into trust if you are trying to leave a nest egg out of the clutches of HMRC

 

[sid]

Thanks Matt for the advice. I agree with the ftse tracker idea tbh . It is more sensible.

 

[Theophany]

Without very good reason to recommend BPR schemes (i.e. serious ill health, reduced longevity) there's little reason to recommend a BPR scheme. They are excellent in cases where IHT planning has been left uncomfortably late, but they are extremely expensive, produce meagre returns and are high risk. For example, just surviving the two year anniversary isn't enough as the 'test' for BPR qualification is done at the time of death and not guaranteed. That being said, if you're saving £800k in IHT as the trade off for that, they can be very good as in addition to the potential tax benefits, you retain control of the capital and can withdraw ift if you need to, albeit with reduced liquidity.

I've had some mega wins for clients with Octopus and Blackfinch in the past because they made absolute sense to use them and gave massive savings to the estate. But if you're young (i.e. <60) and don't have any serious health or longevity concerns, it would be difficult to justify using BPR over some kind of straightforward gift or trust arrangement.

Why not just pay the tax due and enjoy the knowledge your children will be in a more equitable future?

If everyone evades tax (legal or not) the world would be a grim place

Pay tax all your life on your income and savings, only for your savings to then be taxed again when you die is a pretty lame argument imo.

 

[dante6491]

Why not just pay the tax due and enjoy the knowledge your children will be in a more equitable future?

If everyone evades tax (legal or not) the world would be a grim place

It's not evading tax, it is paying the legally required amount.

Anyway, as stated above, there a risks involved with BPR investments given the potentially limited returns. If you have sufficient time left there are easier ways to limit your exposure to IHT, gifting being the obvious one. You can also take advantage of the usual spousal exemptions and whilst ISA's are subject to IHT, they are exempt if you gift them to a Spouse and now retain the tax exempt status.

Depending on your pension you may potentially be able to gift your remaining pension pot IHT free to your heir(s) so it could be worthwhile maximising your contributions.

Ross Martin tends to be a fairly good resource for this kind of thing.

https://www.rossmartin.co.uk/index....ate-planning/619-business-property-relief-iht

 

[One More Solo]

I know you're trying to be helpful, but that post was quite a funny example of getting the background to a question utterly wrong such that the advice was terrible!

@sid I don't know much about these investments and you'd probably want to speak to a properly independent IFA. My understanding is that the investments do qualify for BPR, but they tend to be in high risk companies that may not be suitable for your particular circumstances.

I take it you’ve not come across Sonny before, his MO is wading in on every topic whether he understands it or not.

 

[dowie]

How much do these schemes charge?

Like if these schemes take a hefty chunk of your capital upfront and then rape you again on any transactions then... I guess if you're desperate, but if they're just investing in AIM companies as another poster suggested then might as well take a DIY approach and invest directly instead of giving up silly %s to others in order to get the same tax benefits.

I don't believe for a moment that most of the chumps acting as PMs for AIM fund managers have much of a special edge, there is some junk on there you'd want to avoid and not all companies benefit from the tax advantages (as already mentioned by a poster who misconstrued the implications of this) but meh...

I guess if these things invest in companies that are completely unlisted, like not even quoted on AIM it might be trickier to replicate something similar yourself but then again stuff that isn't actively traded has it's own set of problems, who has access to it, how is it priced... seems like another great excuse to bend you over re: transaction fees.

 

[sid]

Yeah thanks for the comments chaps, I have much to think of. I suspect this is a alternative to trusts and gifting depending on circumstances but not where I want to put too much money into it

 

[Theophany]

How much do these schemes charge?

Like if these schemes take a hefty chunk of your capital upfront and then rape you again on any transactions then... I guess if you're desperate, but if they're just investing in AIM companies as another poster suggested then might as well take a DIY approach and invest directly instead of giving up silly %s to others in order to get the same tax benefits.

I don't believe for a moment that most of the chumps acting as PMs for AIM fund managers have much of a special edge, there is some junk on there you'd want to avoid and not all companies benefit from the tax advantages (as already mentioned by a poster who misconstrued the implications of this) but meh...

I guess if these things invest in companies that are completely unlisted, like not even quoted on AIM it might be trickier to replicate something similar yourself but then again stuff that isn't actively traded has it's own set of problems, who has access to it, how is it priced... seems like another great excuse to bend you over re: transaction fees.

They're a totally different animal to bog standard investment funds so making an apples to apples comparison isn't really possible. They really are suitable only for a limited number of investors where the higher fees can be justified by significant tax savings that are required in a shorter timeframe than would otherwise be possible.

Here's some info: https://blackfinch.investments/iht

 

[robfosters]

Without very good reason to recommend BPR schemes (i.e. serious ill health, reduced longevity) there's little reason to recommend a BPR scheme. They are excellent in cases where IHT planning has been left uncomfortably late, but they are extremely expensive, produce meagre returns and are high risk. For example, just surviving the two year anniversary isn't enough as the 'test' for BPR qualification is done at the time of death and not guaranteed. That being said, if you're saving £800k in IHT as the trade off for that, they can be very good as in addition to the potential tax benefits, you retain control of the capital and can withdraw ift if you need to, albeit with reduced liquidity.

I've had some mega wins for clients with Octopus and Blackfinch in the past because they made absolute sense to use them and gave massive savings to the estate. But if you're young (i.e. <60) and don't have any serious health or longevity concerns, it would be difficult to justify using BPR over some kind of straightforward gift or trust arrangement.



Pay tax all your life on your income and savings, only for your savings to then be taxed again when you die is a pretty lame argument imo.

Millennials moaning about house prices argue exactly the opposite about IHT.

 

[Theophany]

Millennials moaning about house prices argue exactly the opposite about IHT.

This millennial is not sure they follow you?

 

[robfosters]

This millennial is not sure they follow you?

I’ve seen plenty of comment on here and around the internet that inheritance tax is too low and the inheritance of properties slows down the availability of housing stock and inflates prices.

 

[Theophany]

I’ve seen plenty of comment on here and around the internet that inheritance tax is too low and the inheritance of properties slows down the availability of housing stock and inflates prices.

Ah, gotcha. It's a weird tax that is pretty punitive in terms of the rate it is levied at, but at the same time has quite generous allowances for most people. Something like only 5% of estates in the UK have paid it in recent years according to HMRC figures.

 

[yogibear88]

I have recommended the Octopus ITS to quite a few clients. It is less risky than the AIM version and tries to achieve a return of 3% per annum. Whilst not the best return you will still be saving 40% in IHT in a much more stable investment than AIM portfolio versions of the plan.

As you stated you can gift into trust via other investments (Investment Bonds are a good vehicle for this) or straight cash. However, you would then have the 7 year IHT scenario rarther than the 2 year.

Be worth asking your adviser regarding this option instead.

 

[sid]

Thanks,

Are there any rumors about changes to IHT allowances? Any further increases ?

Sid

 

[booyaka]

What doesn’t qualify for Business Relief
You can’t claim Business Relief if the company:

mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments.

Doesn't sound like you would qualify for the relief tbh.

Why don't you just make Investments as per normal and anything you are going to give away above the threshold do so now.

For example let's say you own a home worth £300k, a flat worth £150k and other investments and cash worth £150k.

I'd just gift the home now and then keep the flat and other investments as they are below £325k.

The easiest way to get around IHT is to give away everything above the threshold at least 7 years before you die.

Not often I call someone out - but this is horrendous advice...... Utterly misinformed