Latest Post
Business Property Relief here to stay
Posted on February 10, 2012
The British government doesn’t plan on changing inheritance tax support for family businesses, despite a recent report from one of the country's top universities recommending the removal of business property relief according in article published by Campden FB.
At a meeting with UK lobby group the Institute for Family Business, exchequer secretary David Gauke said that when the Office of Tax Simplification reviewed the country’s tax reliefs recently, it didn’t recommend removing BPR for inheritance tax.
Under BPR, next-generations who inherit a stake in the family business do not have to pay a succession tax. The relief is crucial to growth, IFB said, and if removed would increase sales or liquidations of family businesses. “We are encouraged by the minister’s response that BPR is seen as a tax policy that provides encouragement to the family business sector,” Grant Gordon, IFB’s director general, said in a statement. “BPR needs to be retained in full as its removal would have a devastating impact on growth of successful family businesses, and on investment in the sector,” he added.
A report by the London School of Economics for the UK's Department for Business, Innovation and Skills in November called for the removal of the relief, arguing this could incentivise family business owners to reconsider their business structure and bring in professional managers, as well as increasing government revenues. But in a submission to the Treasury last year, the IFB said BPR “facilitates the transfer of family management and ownership of the businesses between generations” and allows “a long-term approach which focuses on stability and sustainability”. It added: “In the absence of such relief ... the inheritance tax, which any successful business would attract, would almost certainly require a sale, liquidation or substantial borrowing. The death of a major shareholder could bring a profitable business to an end.”
Ross Warburton, IFB chairman and a fifth-generation member of family-owned bakery company Warburtons, said that without BPR, his family “would have been forced to sell the business and would not have been able to pay the inheritance tax duties after the deaths of the previous generation of owners”. He added that its removal “could lead to the premature transfer of ownership to the next generation, before they fully understood how to be responsible owners”.
Family businesses account for two-thirds of the UK's private companies, according to the IFB’s latest research, produced by Oxford Economics. In 2010, they contributed £81.7 billion (€92.8 billion) in tax receipts, or 14% of total government revenue.
Recent Posts
Stellar Launch Learning Zone
Posted on January 19, 2012
Today, Stellar Asset Management Limited launched their online Learning Zone in order to help financial advisers understand some of the more specialised tax planning investments on the market.
Stellar will be recording a number of live web based seminars over the coming months which will cover topics such as Enterprise Investment Schemes, Business Property Relief and Alternative Investments. To be part of these recordings and live seminars, please contact Gordon Pugh at Stellar or register your interest on the website www.stellar-am.com/events/
Tax Planning Consultation on 2012 Finance Bill
Posted on December 9, 2011
On 6 December the Government published its response to consultation on venture capital tax reliefs which should be incorporated in the 2012 Finance Bill. The consultation period runs to 10 February 2012.
The draft 2012 Finance Bill contains measures to:
1. Introduce a Seed Enterprise Investment Scheme (SEIS);
2. Simplify and refocus the existing EIS and VCT schemes;
3. Bring in an exclusion on the acquisition of shares in another company;
4. Allow larger companies to benefit from EIS (and VCT) investment; and
5. Exclude certain trades from which Feed-In Tariffs are derived from being qualifying trades.
Seed Enterprise Investment Scheme (SEIS)
From 6 April 2012, subscriptions by individuals for shares in new start-up companies which meet the qualifying conditions, will attract: income tax relief of 50 per cent for subscriptions for shares of up to £100,000 per annum, irrespective of the investor's marginal tax rate; exemption from capital gains tax on the disposal of such shares; and for investments made in the 2012/13 tax year only, an exemption from capital gains tax on gains also arising in 2012/13 which are invested under the SEIS (the draft legislation for this has yet to be published).
Companies that qualify for SEIS investment will be able to raise up to a cumulative total of £150,000 under the scheme. The rules that govern SEIS companies are similar to those for the EIS. The qualifying company must have gross assets of not more than £200,000 and must have fewer than 25 full-time equivalent employees before investment.
EIS
Connection rules
EIS income tax relief cannot be obtained by individuals who are “connected”to the investee company. The definition of “connection” is to be relaxed in one instance. The rule that an individual is connected with an EIS company because that investor (together with associates) holds more than 30 per cent of the combined issued share capital and loan capital will be amended to remove the loan capital element from the test.
Eligible shares
Currently, “eligible shares” are those without preferential rights to dividends or assets on a winding up, nor any rights to be redeemed. There will be a small widening of the definition which permits “eligible shares” to have certain preferential rights to dividends (the preferential rights must not be cumulative or subject to a decision by any person).
EIS (and VCTs)
Focus
For investments made on or after 6 April 2012, there will be a new "disqualifying purpose" test which is designed to exclude companies set up for the purpose of accessing the tax reliefs. Broadly, a trade will not qualify where there are arrangements for the whole or majority of the funds raised to benefit another party to the arrangements or where it would be reasonable to expect that the trade would otherwise have been carried on as part of another business.
Acquisition companies
There is to be an exclusion on the use of EIS (and VCT) funds for the acquisition of shares in another company. The change is designed to help achieve continuing EU State Aid approval, which prohibits State Aid from funding buyouts. It is not intended that the change should prevent subscriptions for new shares in subsidiaries which are at least 90 per cent owned by the investee company. The proposed change does not affect the purchase of a trade and assets. This change will apply to EIS investments made after 5 April 2012.
Size limits
As announced with the March 2011 Budget, subject to EU State Aid approval, for investments made after 5 April 2012, there will be:-
• an increase in the employee limit to fewer than 250 employees at the time of investment;
• an increase in the size threshold to gross assets of no more than £15 million before investment and £16 million immediately after; and
• an increase in the maximum annual amount that can be invested in an individual company to £10 million.
Feed-in Tariff businesses
As announced with the March 2011 Budget, companies whose activities consist wholly or to a substantial extent of the generation or export of electricity from wind or solar power which gives rise to Feed-In Tariff (or equivalent) income. The restrictions will apply to investments made on or after 23 March 2011, in companies which have not commenced the subsidised generation or export of electricity before 6 April 2012.
Flexible IHT planning - Business Property Relief
Posted on November 21, 2011
Flexible IHT planning tool
For most people in the UK, IHT is not given great consideration principally because of the belief that it only affects the rich. However, rising property values in the past 20 years mean that many issues being faced by families today are a direct result of being dragged into the IHT net by stealth means. There a number of established ways to mitigate IHT and these include making a will, gifting, insurance, equity release, insurance and trust planning. The latter is now very much under the Government’s microscope as all new plans need to be disclosed under the DOTAS regime.
One of the major problems with all of the above is that the donor is required to give up control over some or, in most cases, all of their estate. Assets are transferred to someone else which may not always be desirable. Another issue is that gifts and trusts also take seven years to be fully exempt from IHT. This then requires careful financial planning which sadly is not always on the mind of the donor. All is not lost as there is way of mitigating IHT without the need to relinquish control and enables estates to be free of IHT within two years. Unfortunately, our research shows that this simple area of financial planning is not widely known.
This mitigation strategy is available through business property relief or BPR.
BPR enables you to claim relief on any business assets that you own and includes shares in qualifying businesses. The types of company which qualify for BPR must be unquoted although this definition includes AIM and Plus markets companies and they must also actively trade, that is, they cannot be an investment company. There a number of established options of utilising businesses which qualify for BPR. The two most common are AIM portfolios and Forestry. However, there are other trading opportunities which can be considered and these include:
• property development • owning and managing public houses • debt factoring • leasing; and • renewable energyMost of these trades do offer a lower-risk profile as they are asset backed which, provided you do not borrow against these assets, do offer security over the long term.
There are two fascinating areas of planning which can also be incorporated under any BPR qualifying investment.
Business Asset Rollover Relief
Business Asset Rollover Relief enables someone to defer any Capital Gains Tax due when business or trading assets are disposed. If they acquire other assets costing the same as, or more than, the amount received on a disposal of the old assets, the relief allows the individual to postpone paying tax until disposal of those new assets. If new assets are acquired for less than the amount received on the disposal of the old assets, partial relief will be available.
You must acquire the new assets, or enter into an unconditional contract for the acquisition of the new assets, in the period twelve months before, and thirty six months after the disposal of the old assets.
Replacement relief
Replacement relief utilises the characteristics and timescales of Business Asset Rollover Relief except that it enables the asset owner to continue to benefit from 100% relief from Inheritance Tax. Therefore for a business owner who is looking to sell or has indeed already sold, further tax planning may be considered.
Example
Mr Delamare has agreed to sell his printing business for £1 million having built the business from scratch 5 years ago and does not wish to pay CGT of approximately £ 280,000 and has previously used his entrepreneurs relief. Mr Delamare is no longer keen to have all his assets in one asset class and therefore could take advantage of vehicles offering different qualifying trading activities.
Mr Delamare could reinvest the £ 1 million proceeds in his own private limited company and participate in a range of trades which qualify for Business Property Relief. By doing so he remains in control of the money, has claimed CGT deferral through Business Asset Rollover Relief and will continue to protect the sales proceeds from IHT through Replacement Relief.
If this money is left in the company, then upon death the CGT liability will disappear and also no IHT will be payable on this part of his estate. The trading company environment also enables Mr Delamare to take income arising from trading profits should this be desirable.
| Do nothing | Re-invest in trading business | Sale proceeds | 1,000,000 | 1,000,000 | Pay CGT | (280,000) | Nil | Net proceeds | 720,000 | 1,000,000 | IHT liability on death | (288,000) | Nil | Value of estate | 432,000 | 1,0000,000** |
|---|
** Assumes no growth in value and traded for two years
A partnership would be formed with other like-minded investors with similar companies to undertake a particular project and capital would initially be spread across a number of different partnerships. The shareholder of each trading company is then asked whether they wish to participate in these projects and is free to say no. At the end of each project, capital will be recycled using the same process and any profits can be distributed as income to shareholders if they wish.
Introducing the Stellar AIM Inheritance Preservation Service
Posted on November 21, 2011
About AIM
AIM was launched in June 1995 by the London Stock Exchange plc, as the Alternative Investment Market, and provides relatively small, growing and occasionally new companies with a relatively inexpensive and flexible method of gaining a stock market quotation.
There are now around 1,250 companies quoted on AIM with a total market value of almost £62 billion: the average size of an AIM company is approximately £49 million.
Hargreave Hale is the investment manager, and they have been managing AIM portfolios for private clients since 2005. Hargreave Hale is one of the UK’s best performing AIM portfolio managers and has continually outperformed the FTSE AIM All-Share Index. Over the last twelve months the Hargreave Hale AIM IHT portfolios have returned 30.3% compared to a 17.4% return from the FTSE AIM All-Share. See below.
Our AIM Inheritance Preservation Service Insurance Policy
Posted on September 2, 2011
About our Insurance Policy
Stellar has sought to offset the risk of a potential decrease in the value of the (AIM Inheritance Preservation Service) portfolio by offering an insurance policy which can be taken our alongside the investment which will pay out on any fall in the value of the investment at the date of death.
There is no obligation to take out the policy which can be cancelled at any time and will cover any potential decrease in the value of the fund due to fees and charges.
You will need to ensure that the insurance policy is written into trust to ensure that in the event of a claim. Therefore any payment will be outside of the estate and not liable to Inheritance Tax.
AIM Inheritance Preservation Service - Managing Risks
Posted on September 2, 2011
The main risk involved with investing in AIM companies is the possibility of a decrease in the value of the portfolio, therefore eroding the capital invested.
We have sought to offset this risk in two ways. Firstly we have partnered with a highly rated fund manager with an excellent track record investing in AIM.
Secondly by offering an insurance policy which can be taken our alongside the investment which will pay out on any fall in the value of the investment at the date of death.