10/11/22

WEALTH MANAGEMENT: New research shows wealth managers and financial advisers are recommending business relief as their preferred IHT solution for clients.

As published on ifamagazine.com, Thursday 10 November, 2022.

New research with wealth managers and financial advisers by TIME Investments, the leading estate planning solutions provider, shows that Business Relief (BR) is now being used by the majority (83%) as an Inheritance Tax (IHT) planning tool for their clients. Many advisers like to incorporate BR into estate planning because it offers a faster route to IHT relief, requiring only two years to gain IHT exemption instead of seven years with gifting or trusts.

The research shows that 12% of advisers are now recommending BR at least once a month as their preferred IHT solution for clients, with a further 34% recommending it every three months. This means that almost half of advisers surveyed are recommending BR at least once a quarter. The majority (76%) are using it up to twice a year.

When recommending BR, 27% of advisers said they either use AIM BR services exclusively or more than unquoted services, which was something of a surprise given the relative volatility of the AIM index. However, the majority of AIM for BR purposes is held within an ISA, as this is the most straightforward way to ensure an ISA investment is free of IHT after 2 years, whilst maintaining the tax benefits of the ISA wrapper. A third said that they use quoted and unquoted in equal measure.

The new findings come as IHT receipts hit a record £6.1 billion for the most recent tax year 2021/22, an increase of 14% on the previous year and the largest single-year increase in five years. With the Office of Budget Responsibility (OBR) predicting that this trend will continue, Inheritance Tax is a major concern for many families already under pressure from the rising cost of living crisis.

However, despite its effectiveness as an estate planning tool, analysis of Government data shows that the use of BR as an IHT exemption has reduced. Only £1.9 billion of BR exemption was claimed by 2,820 estates in the 2019/20 tax year, down from £2.5 billion claimed by 3,240 estates in the previous year. This means many investors may be missing out on this valuable tax exemption.

Henny Dovland, TIME Investments’ IHT technical specialist, said: “The popularity of Business Relief as an estate planning tool is growing because it offers investors a faster route to IHT relief than gifting or trusts. However, although many advisers are writing BR business, it is still an under-utilised opportunity, despite offering tangible value to client outcomes.”