As we continue a look into alternative investments, below we outline the details of what BPR is and how it works.
BPR has been an established part of inheritance tax legislation since 1976. When it was introduced, the main aim of BPR was to ensure that after the death of its owner, a family-owned business could survive as a trading entity without having to be sold or broken up to pay an inheritance tax liability. Over time, successive governments have intentionally expanded BPR so that now it is also an investment incentive for private investors.
Similar to VCTs, BPR’s aim is to encourage individuals to invest into smaller companies, whose shares and securities are not listed on the main stock exchange, and may be willing to accept the additional potential risk of investing into these types of businesses.
Investments that qualify for Business Property Relief (BPR) can be passed on free from inheritance tax upon the death of the shareholder, provided the shares have been owned for at least two years. BPR-qualifying assets can also be settled into relevant property trusts, potentially mitigating entry, exit and periodic charges.
Not every business will be BPR-qualifying. Broadly speaking, investments in the following kinds of businesses that carry on a trade rather than investment activities could qualify for BPR, including:
In addition to private qualifying businesses, investors can choose from a range of BPR-qualifying investments managed by professional fund managers. These can cater for different client requirements.
Portfolios of unlisted companies usually target specific investment objectives such as capital preservation, liquidity or growth or to meet investor needs in this market. Portfolios of AIM quoted companies typically target growth.
In 2013, the Government made it possible for investors to hold AIM-listed shares in an ISA. Therefore, an ISA that invests specifically in AIM-listed companies expected to qualify for BPR can offer inheritance tax exemption as well as the traditional ISA benefits of tax-free income and capital growth.
Whereas a gift typically takes seven years for the estate to achieve full inheritance tax exemption, a BPR-qualifying investment can be passed on at death free from inheritance tax provided it has been held for at least two years.
Whereas settling assets into trust or gifting permanently removes assets from the client’s ownership, shares in BPR-qualifying investments continue to be held in the client’s name. Subject to liquidity, clients can ask to sell shares and have the proceeds returned to them, or they can set up regular withdrawals to meet changing needs, such as care home fees.
Investors can use their £325,000 allowance to reduce the inheritance tax charge on less liquid assets, such as their home, which are otherwise difficult to remove from the estate when planning for inheritance tax.
BPR-qualifying investments are an option available for migrants who want to invest a minimum of £2 million in the UK under the Tier 1 (Investor) visa rules. Some BPR-qualifying investments also qualify for Business Investment Relief, which could be attractive to non-domiciled clients looking to bring funds to the UK.
BPR-qualifying investments are not likely to suit everyone, and it is important that investors understand the risks associated with such an investment. The value of an investment, and any income from it, can fall or rise and investors may not get back the full amount they invest. The shares of the smaller companies that you may invest in could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell. Furthermore, past performance is not a reliable indicator of future results.
Investments will be made in trading companies that are not listed on a main stock exchange. The companies invested in could fall in value, and investors may get back less than they invest.
Investments in unquoted companies or those quoted on AIM are likely to have higher volatility and liquidity risk than securities on the main market of the London Stock Exchange.
The value of tax reliefs will depend on an investor’s personal circumstances. BPR is assessed at the time a claim is made and there can be no guarantee that a company will remain BPR qualifying. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status.
Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, investment, tax or financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.
You should only invest on the basis of the information contained in the relevant brochure and/or investor agreement, and we recommend that you take independent financial advice before making your decision.
Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.
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