Utilising Business Relief is the safer option for less experienced investors
Stellar can offer stability for advisers and their clients
For many people looking to shelter their finances from Inheritance Tax (IHT), capital preservation and volatility management are crucial. This means that less experienced investors are likely to favour a safer option.
In practical terms, this means that investing in a diverse portfolio and retaining full control of their capital will be vital for most clients.
At Stellar, we specialise in investing in business activities that qualify for Business Relief (BR). With a BR qualifying investment, the client maintains full control and access to their capital throughout their lifetime.
In addition, by investing in a range of assets, we effectively mitigate the risk of each investment. This is achieved whilst providing full relief from inheritance tax after only two years.
Click on the video below for a quick overview of Business Relief and how it could work for you and your clients:
Recent FCA news further highlights a need to match investor profiles with suitable investments
Many clients place a huge importance on mitigating risk when managing their exposure to IHT. Despite this, higher risk alternatives to BR are regularly being offered to less-sophisticated investors.
The Financial Conduct Authority (FCA) recently announced they are increasingly seeing potentially safer options being overlooked in favour of investments with more substantial risk.
For example, higher risk options such as Venture Capital Trusts (VCTs) are being made available to investors who are unfamiliar with the market. These options can offer high growth potential and a number of tax benefits. However, VCTs are also higher risk and may feature reduced liquidity. Therefore, they are not appropriate for every investor.
As a result of these practices, the regulator is preparing for a crackdown on poor advice and unsuitable products. This review will focus on retail investor exposure to alternative investment products.
With the FCA’s focus now firmly on this sector, advisers must be more certain than ever that clients fully appreciate the conditions of their investment.
Another higher risk alternative to BR, the Enterprise Investment Scheme (EIS), comes with a high risk of illiquidity and share dilution by investing in early stage businesses. The scheme also requires that capital must be held for a minimum of three years to benefit from tax relief.
Many funds aim to offer exits for investors within four to seven years. However, investments can be tied up for much longer. IFA’s need to be confident their client can afford to be without their capital for this extended period.
The FCA have previously taken a hard-line stance on industries offering inappropriately risky products to consumers. This has included a ban on retail investors investing in mini bonds.
Business Relief: the safer option
All of these factors demonstrate that, as the FCA continues to inspect the marketplace, BR’s suitability for many investors is likely to only become clearer.
If you have clients who do not want to give away control to large sums of money but still want to protect their capital from IHT and give their inheritance the best chance to grow, BR investments can be a solution.
Effective wealth planning needs to be carefully designed to suit the requirements of each individual.
However, IHT planning using BR not only offers greater security than other options, it also enables assets to obtain relief faster with qualifying assets only needing to be owned for at least two years. This makes BR an effective choice for a range of investors regardless of their investment experience level.
If you have any questions about our services or how they could work for your clients, click here to get in touch with an expert member of the Stellar team.