Home Finance IHT planning: Income generation & portfolio diversification through lending and leasing

IHT planning: Income generation & portfolio diversification through lending and leasing

by gbaf

By Jack Rose, Triple Point

Triple Point’s Jack Rose considers inheritance tax (IHT) options, and how business relief in the form of leasing and lending can benefit clients and help UK businesses build back better.

The complexities of Inheritance Tax (IHT) can be difficult to understand and awkward to plan for. As a result, every year families end up paying large IHT bills that could have been legitimately mitigated. In 2020, it was reported the number of families charged inheritance tax on gifts climbed for the third year in a row. This is likely due to the confusion surrounding the rules and benefactors dying within seven years of making the gift. It further compounds the point that planning in advance is a priority.

For those with a proactive mindset, Business Relief (BR) represents a well-established and appealing option. Importantly – after a year where families, businesses, care-workers, students and pensioners have faced unprecedented pressures – there are BR strategies available that can enable clients to invest for future generations whilst helping the UK economy build back better.

The advantages of Business Relief

As an investment incentive BR is simple and straightforward. It enables assets to obtain relief faster than trusts or gifts and, most importantly, is done in the client’s name so there is no loss of control for the investor over their capital. If you hold shares in qualifying businesses for a minimum of two years at the date of death, the shares may qualify for BR, and therefore not be liable for any IHT.

BR can enable an individual to meet their estate planning goals and also target predictable returns and capital growth. However, all of these factors are reliant on a careful examination of the BR strategy in mind along with the asset types targeted by the chosen provider.  The types of businesses that typically qualify for BR, include shares in unquoted qualifying company, even a minority holding; shares in a qualifying company listed on the Alternative Investment Market (AIM); and an unincorporated qualifying trading business.

Needless to say, individuals must be very aware of the particular characteristics, benefits and risks of a BR investment strategy. For example, investments in quoted markets including AIM – which are directly impacted by market shocks – can put a client’s funds, often earned over a lifetime, at risk. In 2020, we know that investors had to navigate some of the most volatile markets in recent memory. The FTSE 100 recorded its worst year since 2008 after falling by 14.3% – among the poorest performers compared against the largest international stock indices. It is therefore absolutely essential that individuals rely on financial advisers to critically examine their options along with asset types that build a truly diversified and uncorrelated IHT portfolio.

Lending and leasing Business Relief

Whilst there is a wide variety of options across sectors and asset classes, many are unaware that some of the key investment opportunities that qualify for business relief today are via companies that provide funding in the form of lending and leasing. These companies can, in some instances, provide funding to a huge range of organisations from the NHS to smaller firms across the UK.

Triple Point’s Estate Planning Service (‘TPEPS’), as an example, consists of two strategies – one which provides leasing and lending to a diverse range of UK SMEs, and the other which provides leasing, lending and infrastructure funding to Public Sector organisations and corporates. Through a single strategy or a blend of both, investors can achieve 100% relief from IHT on the amount invested after two years through BR. The Generations strategy, one of two leasing and lending companies that makes up TPEPS, provides business critical funding to public sector organisations and institutions, for example, leasing an ambulance to the NHS.

Lending and leasing strategies can therefore help retirement planning on two counts: it can enable portfolio diversification, as well as delivering secure, attractive fixed rate returns uncorrelated to stock market volatility. In doing so, it directs private capital towards supporting SMEs and enhances the UK’s chances of a faster economic recovery – a cause that benefits us all.

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