Inheritance Tax – Property Business Relief

Investor Profile:

• Individuals seeking an investment qualifying for Business Property Relief after two years.

• Ideally suited to those with a life expectancy of less than seven years.

• Looking for the estate to make Inheritance Tax savings after a relatively short period and achieving modest capital growth or income for the duration of the investment.

• Individuals with the appropriate investment risk profile, knowledge and experience of complex investment structures.

Inheritance Tax (IHT) is levied on a person’s estate when they die, and certain gifts made during an individual’s lifetime.

At present, the first £325,000 of an individual’s estate is taxed at 0% this is referred to as the nil rate band and is effectively tax-free. The excess estate over the nil rate band is taxed at 40% on death and chargeable lifetime transfers are taxed at 20%.

For the excess value of an individual’s estate beyond the nil rate band there are various methods of mitigating IHT liability. Generally these make use of the personal allowances and exemptions available and the use of Will and trust planning, and more recently the use of residence nil rate band where applicable.

In addition to these areas of planning, Business Property Relief (BPR) introduced in 1976, was designed to allow family businesses to be passed down through the generations unhindered by inheritance tax. Shares in BPR qualifying companies are deemed to be exempt from inheritance tax if they are held for just two years and at the time of death. This relief is now used widely by investment managers in products that can complement other estate planning solutions such as trusts and gifts.

BPR applies to relevant business assets such the outright ownership of a business or an interest in a business e.g. a partnership, securities in a company which is unquoted and which gave the transferor control of the company immediately before the transfer, or shares in unlisted companies or those traded on the Alternative Investment Market.
To qualify for business property relief, the relevant business property must have been held by the transferor for two years immediately prior to the transfer. If the transferor dies within the two years following the purchase of the property then the property will not qualify for BPR and IHT will become due on the value of the property at the date of death.

There are various schemes which aim to utilise BPR. Typically these schemes offer the investor the opportunity to invest funds into a corporate or partnership structure which will in turn deploy the funds into a qualifying trade or make investments into qualifying unlisted companies with the aim of the investor’s holding qualifying for BPR after the two year initial period.
The investment strategy of these schemes tends to focus on capital preservation rather than high returns which would bring extra levels of risk in order to maintain the investor’s level of capital through the minimum holding period.

An example of how BPR could be utilised is as follows:

An individual aged 75 years has total assets including main residence, investments and savings of £825,000 and wants to consider ways of mitigating his estate’s liability to IHT. Of the total assets there is an amount of £200,000 which is liquid and available for investment.

The table below shows the potential IHT liability reduction available through using these funds to make a BPR investment:

You can download the PDF here.

This summary sheet is purely for illustration purposes and does not constitute an invitation to participate. Any illustrations are not conclusive and do not cover many aspects of these structures. Under no circumstances should an individual consider this a recommendation, nor should they use this summary as an indication as to the potential for participation. The value of investments may fall as well as rise. You may receive back less than the original investment. Any decision to participate should be made with the help of appropriate tax advice.

Relevant Life Policy

In July’s blog post we looked at strategies business owners can implement to protect their business from loss of a key person shareholder.

Today we are going to explore Relevant Life policies which are a lesser-known life policy.

What is a Relevant Life plan?

• An individual Death In Service life assurance policy available for employees of the company which may include directors
• Your business pays regular premiums based on the level of cover
• If the person covered dies or is diagnosed with a terminal illness whilst in employment during the term, the plan pays a fixed, one-off lump sum
• The plan is designed to meet certain legislative requirements that mean your premiums, benefits and options should be treated tax efficiently
Who can take out a Relevant Life Plan?
• To be eligible for a Relevant Life Plan, the person to be covered must be an employee of the business, which can include company directors who are salaried. Unfortunately, Relevant Life Plans are not available for sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
• It’s a Single Life Policy, which means each plan covers one person. There’s no option to include joint cover in the same policy.

How a Relevant Life policy can cut company costs

Relevant life graphic

* Assume that corporation tax relief is 20% and had been granted under the ‘wholly and exclusively’ rules. In both cases we’ve assumed a payment of £1,000 each year for the life cover on an employee who’s paying income tax at 40% and employee’s National Insurance at 2% on the top end income. We’ve also assumed that the employer is paying corporation tax at the small profits rate of 20% and will pay the employer’s National Insurance at the contracted-in rate of 13.8%.

This summary sheet is purely for illustration purposes and does not constitute an invitation to participate. Any illustrations are not conclusive and do not cover many aspects of these structures. Under no circumstances should an individual consider this a recommendation, nor should they use this summary as an indication as to the potential for participation. The value of investments may fall as well as rise. You may receive back less than the original investment. Any decision to participate should be made with the help of appropriate tax advice.

You can also download this fact sheet as a PDF.

What can Delaunay Wealth Management do?

  • Advise you on the most appropriate policy to be fully underwritten
  • Work with your tax advisors to undertake a business valuation for these purposes
  • Ensure the Business Risk Plan is regularly updated to reflect the value of the business
  • Introduce you to a legal firm experienced in drafting the documents to go with such a transaction

Contact us for more information
T: +44 (0)345 50 53 500 E: mail@delaunaywealth.com

Managing Risks within your Business

How would your business cope with the loss of a key person shareholder?

The basics of business risk management and protection

Legal and General tell us there is a £1.1 trillion business protection gap and this is one of the major potential areas for concern for owner-managed business (OMBs). Managing all the risks and fully protecting a business is often thought to be lengthy and complicated. But actually, the principles are similar to any other type of risk management.

Clearly there are many business risks but these are the main ones to consider:

  • The loss of key individuals having a serious impact on your profits
  • Covering all of your business borrowings
  • Succession planning or the death or incapacity of a business partner

A business protection strategy could help a business continue in the event of a key person, partner or director falling terminally or critically ill or dying.

 

What is Key Person Protection?

It’s simply a company insuring itself against the financial consequences it may suffer as a result of the death (or critical illness, if chosen) of a key team member. Key people are the individuals whose skill, knowledge, experience or leadership contribute significantly to the company’s profitability and continued financial success.
A key person may be one of a number of people within a company, such as the chairman, managing director, marketing manager, computer specialist or sales manager – anyone whose death could lead to a serious financial loss for the business.

How does it work?

The business is the owner and the policy proceeds, if payable, will be paid to the company as replacement profits. The company then uses the proceeds to work its way through the loss of that key person.

Whether or not the premiums will be tax-deductible, or the proceeds taxable, will very much depend upon the circumstances for each individual business and we would recommend considering this aspect closer with your tax advisers before finalising the policy.

What is Shareholder Protection?

The loss of a partner or director will often de-stabilise a business and can quickly lead to financial difficulties. Partner/Director Share Protection means if the worst does not happen, the remaining directors or partners have the necessary finance to stay in control of the business. This gives them the chance to re-structure and manage relationships with the bank, creditors, supplies and key customers.

How does it work?

In the event of a partner or director dying, falling terminally or critically ill, Partner/Director Share Protection can provide a sum of money to the remaining partner(s) or director(s). This means that in the event of a valid claim, the policy could pay out an amount sufficient to purchase the deceased or critically ill partners/directors interest in the business. This secures the interests of the remaining shareholders without putting the future of the business at risk. In addition, the surviving family of the deceased have converted shares in a company, that they have little understanding or involvement in, in return for cash which is likely to be much more appropriate for their needs.

“Effectively it puts money in the right hands at the right time – when it’s most needed”

Download the full version PDF Managing Risks in Your Business

 

What can Delaunay Wealth Management do?

  • Advise you on the most appropriate policy to be fully underwritten
  • Work with your tax advisors to undertake a business valuation for these purposes
  • Ensure the Business Risk Plan is regularly updated to reflect the value of the business
  • Introduce you to a legal firm experienced in drafting the documents to go with such a transaction

Contact us for more information
T: +44 (0)345 50 53 500 E: mail@delaunaywealth.com

5 Top Tips for a Financially Secure Future

Long-term financial planning or even retirement may not be at the forefront of most young people’s minds. However, those that do consider their options and plan accordingly, have a clear advantage in the long term. We’ve collated some practical top tips that will help you on your way to a financially secure future.

Get ready early!

Often your younger years are when you’ll have the most disposable income and if you’re switched on then saving early will help you in the future. Often people get to the 30 – 40 age and worry that they may have no or little savings. If you’re living with parents still or don’t yet have children use this time to put some money away for your future investments. Make use of the workplace pension option if you’re young as well, it’s a great way to boost your savings for the future.

Invest in property

In Britain we’re all obsessed with owning our own property, which makes sense when mortgage repayments are often less than renting. It may be a challenge to save enough for a deposit when you’re young, but if you can it is definitely worthwhile. First time buyers are also exempt from stamp duty which can help you save a huge bill. You may choose to rent the property out and receive rent as an income or live there yourself. Generally speaking, buying a home is an investment in an appreciating asset so if and when you decide to sell, you should be able to do so at a profit, provided it isn’t in negative equity. And if you stay in the same property, once you have paid off your mortgage it will free up a huge portion of your finances to invest in a healthy retirement. A word of warning though: property is not just an investment, it is also a 20-30 year financial commitment, so be sure to speak to a professional before taking the step.

Calm down on spending

When you’re young it’s easy to get into bad spending habits which will drain you bank account, £100 shoes that you wear once are not a great investment. It’s good to get into a necessity mindset to curb your spending, while it’s important to indulge yourself once in a while. Think of purchases like an investment and if you’re not receiving the benefit you’re paying for then is it really a good buy? When you’re young it’s also easy to build up debt from University or just generally. Try to steer clear of store cards which can have high interest rates and also avoid buying items on your credit card that you’ll be unable to immediately pay back. While it’s good to have a credit card to build your credit rating only use it if you can pay it back by the end of the month.

Loyalty doesn’t always pay

It’s easy to be loyal to what you know, but often the habit can cost you, whether a bank account, phone contracts or car insurance. Loyalty often isn’t rewarded in these areas and while it can become habitual to renew or continue with the same service it’s important to investigate to get the best deals. Many young people will have had the same bank account since they turned 16 and often, you’ll be able to get better rates with another bank, or even a nice switching bonus. The government has launched a service to help you get the best deal for your bank accounts. It’s called MIDATA. You just have to load your recent statements and it will tell you the best bank account for you in terms of interest rates, overdrafts and more. With regards to mobile phones there are many comparison websites out there that you can use and the same with car insurance.

Talk about finances

If you’re still young you probably won’t have given much thought to future savings. As mentioned before now is the time you’ll probably have the most disposable income so put it to good use. Talk about finances with your partner and get an idea about what you want in the long-term and how you can help yourself now. Ask your parents or grandparents for some advice, they’ll probably know more than you do and they’ve already been through your situation so they’ll probably have plenty of advice anyway!

 

Delaunay Wealth Management provide financial planning services to business owners, professionals and wealthy individuals. Contact us on mail@delaunaywealth.com or 0345 505 3500.

July 2019 Newsletter

Delaunay July Newsletter

Welcome to our July Newsletter. In this edition we share a range of useful articles and resources to help you manage and plan your personal finances, such as:

  • Travel Money: the best foreign exchange rates
  • Pensions: why self-employed people should mind the gap
  • The financial impact of divorce
  • Income Tax Calculator

From pensions and tax efficient investments through to protecting your assets – if you would like bespoke advise on how best to manage your business or personal finances, we’d love to talk to you.

Read the full newsletter here.

* Not all areas of estate planning or tax planning are regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances. Both your circumstances and tax rules may be subject to change in the future.

Disclaimer: The Information included in this email is reserved to named addressee’s eyes only. Delaunay Wealth Management Ltd is not responsible for the content of third party sources.

The Financial Impact of Divorce

Divorce can be an emotionally stressful time of life. Even if there are no children or dependants involved, the allocation of assets after divorce is often an area of disagreement and can turn the best of relationships sour. As a general rule, the more details both parties can agree to between themselves, the better.

DIY Divorces

It is possible in England and Wales to get a legally enforceable divorce, from as little as £100. If divorcees want to minimise the cost of a divorce without involving a solicitor, then it is possible to get a consent order. A consent order details a financial agreement between the two divorcees which is legally enforceable. If couples create a written financial legal agreement without a consent order it is not 100% legally enforceable and sometimes results in a claim against a former partner.

Complex divorces

Even if both individuals have parted on good terms, getting professional advice from a solicitor, mediator or financial adviser is recommended when your financial situation is more complex. This could include owning a business or one person being financially dependent on the other person.

There is no hard and fast rule about how assets will be split following a divorce. Should it be impossible to reach an agreement, these are the factors that a court would look at:

  • Current income and earning capacity, property and other financial resources that each spouse has or is likely to have in the foreseeable future.
  • The financial needs, obligations and responsibilities, which each spouse has or is likely to have in the foreseeable future.
  • The standard of living enjoyed by the family before the breakdown of the marriage.
  • The ages of each spouse and the duration of the marriage.
  • Any physical or mental disability of either spouse.
  • The contributions that each spouse has made or is likely to make in the future to the welfare of the family.
  • The conduct of each spouse, if that conduct is such that it would be unfair to disregard in the opinion of the Court.
  • The value to each spouse of any benefit that one spouse would lose because of the divorce.

As financial planners, we can advise on issues such as how to divide the assets in the most tax-efficient way and how to best invest the proceeds of divorce. Contact our team on mail@delaunaywealth.com or +44 (0)345 505 3500.

What is inheritance tax planning and how can you reduce it?

Inheritance tax or IHT is paid on everything of value that you own when you pass away.

It includes: Your property (including any overseas property), any land, savings and investments, cars, jewellery and any art. When you pass away anything you own is called your estate, and all of it will be subject to IHT unless you leave your estate to your spouse or civil partner. The current IHT threshold is £325,000 which has been frozen until the 2020/2021 tax year is complete. IHT bills can often be expensive and can be minimised by effective legal IHT planning, follow the tips below to plan your estate and reduce your IHT bill.

Write a Will

Before you even start estate planning it’s vital that you have an up to date will. Creating a will is one of the most important ways to ensure your estate is given to the intended recipients. It’s also important to keep your will updated. Older wills will hold assets in trust which you could lose out on if your will isn’t kept updated. It’s important to seek legal advice when writing a will as an expert will be able to provide you with up to date support and will also be able to help you with the best option for your estate.

 

Lifetime Gifts

Most individuals wait until death to share their wealth, when in fact sharing your wealth before death may be more tax efficient. Lifetime gifts are exempt from IHT and allow you to see the benefit of your lifetime gift to the recipient while you’re alive. Lifetime gifts as following are exempt from IHT.

  • Every year you can give away £3,000 in total as lifetime gifts.
  • You can donate £250 to any number of individuals.
  • You can donate extra for wedding gifts. Parents = £5000, grandparents = £2500 and anyone else £1000.
  • Donations of any amount to charities

It’s also possible to reduce the amount of IHT you pay on certain goods by giving a lifetime gift. See the table below or details of IHT reductions from lifetime gifts.

Number of years between gift and death Tax % paid
0 – 3 Years 40%
3 – 4 Years 32%
4 – 5 Years 24%
5 – 6 Years 16%
6 – 7 Years 8%
7 + Years 0%

 

Pensions

Pensions are a great way to avoid paying IHT altogether, and in the worst circumstance, a beneficiary will only pay income tax rates. Funds left in a pension will be given to a beneficiary stated in the will, but the final amount they will receive depends on your age. If you are below 75, they will receive the full pension amount. If you pass away over 75 then the beneficiary will pay their standard income tax on the amount.

 

If you need help on IHT planning, get in contact with us below or email us at mail@delaunaywealth.com or call us on +44 (0)345 505 3500.

 

Disclaimer: Not all areas of Estate Planning or tax planning are regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances.  Both your circumstances and tax rules may be subject to change in the future.

April 2019 Newsletter

Welcome to our April Newsletter. With the end of the tax year done and dusted, we are now looking forward to longer and sunny spring days. Please see below for a link to a summary of some of the changes to tax and personal allowances that may affect you.

At this time of year many of our clients look at Inheritance Tax Planning and Estate Planning*, so we have collated some useful resources to consider below.

With Brexit uncertainty ongoing and currently no end in sight, you might wonder how Brexit will affect your finances. Whilst there is no definitive answer to this question, the below article provides some useful ideas.

If you would like bespoke advice on how best to manage your finances, we’d love to talk to you.

View the full newsletter here.

This issue includes:

New tax year 2019/2020: Tax and personal allowance changes

How will Brexit affect your bills?

Couples able to pass on £950,000 tax-free as inheritance threshold to rise

Wills and Estate Planning

 

* Not all areas of estate planning or tax planning are regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances. Both your circumstances and tax rules may be subject to change in the future.

Beat the Pension tax relief cut!

 

Time is fast running out for higher earners to maximise their pensions savings as the Government prepares to slash the generous 45% tax relief available.

From next April many additional rate taxpayers – those who pay income tax at 45% – will only receive full relief on annual contributions of up to £10,000, compared to the £40,000 they currently enjoy.

If investors are affected they need to act now to take full advantage of pension tax relief as this is a case of “use it or lose it”!

Please read our article on how this may affect investors in the link below:

Beat the Pension tax relief cut >

The new pension regimes are highly complex, so it is vital to get expert advice tailored to your situation.

If you would like to talk about pension options please do get in touch.  We can help you make sense of the pension changes and advise how best to make the most of the opportunities available.

 

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Advised investors are “happiest with their investment performance”

 

Are you aware of the good work we are doing through our successful Model Portfolio Service?

Past experience has shown us that many clients are unclear on how their investments and pension portfolio’s are performing, the risk being taken and the charges that are applied.

We are therefore offering clients a no obligation, value for money analysis where we will provide an overview of their investment portfolio, health check on charges and an assessment of risk.

We believe that by ensuring the investments are set up to meet clients objectives, by moderating risk through effective asset allocation and the underlying assets and funds are proactively managed for suitability, this will help maintain their financial goals.

It has been proven that investors who take professional financial advice are generally happier with their investments’ performance and have more confidence they’ll meet their financial goals, according to findings published in a recent study. 

The following links will provide you with useful information on our Model Portfolio Service:

Model Portfolio Service approach >

Delaunay Wealth Management Model portfolio service fund factsheets >

Global Market Outlook from LAM as of July 2015 >

We trust you find this useful and please do get in touch if you would like to discuss our services further.

 

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Delaunay Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (806635). Registered in the UK at: Wey Court West, Union Road, Farnham, Surrey, GU9 7PT. Company Registration Number: 08107472 The Financial Conduct Authority does not regulate taxation and trust advice and employee benefits.

Should you have cause to complain, and you are not satisfied with our response to your complaint, you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows: The Financial Ombudsman Service, Exchange Tower, London, E14 9SR www.financial-ombudsman.org.uk

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