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A way to reduce Inheritance Tax

It's ISA season so I’m going to write about Inheritance Tax. (IHT) This is not just to be contrary but to show how ISAs can be used to avoid IHT, yes your existing cash and Equity (share based) ISA accounts can be invested to avoid IHT in just two years!

IHT is payable at 40% on all assets over certain limits. Not surprisingly this limit varies from individual to individual. For example suppose your estate is 100,000 over your limit and thus would attract tax of 40,000 on your demise.

To avoid the tax you need to reduce your estate by 100,000. You could gift that amount to your beneficiaries and as long as you live seven more years that gift would be IHT free. Pass away at any time within that seven years and tax of 40,000 would become payable.

This is a problem since you may need the money or the income from it, and we don’t know how long you are going to live.

A relief from IHT that has been around since 1976 is Business Property Relief. (BPR) This is not property as we normally know it i.e. flat, house but certain limited companies.

Provided an individual has owned shares that qualify for BPR for two years at the date of their death, those shares are free of IHT. Around 40% of the shares quoted on the Alternative Investment Market (AIM) qualify for this relief and can be held within an ISA account.

On the example in paragraph 2 therefore if the 100,000 was in BPR qualifying shares, even if invested through an ISA account, for only two years, then the beneficiaries would have a zero tax bill saving 40,000.

A problem with AIM shares is risk; they are a higher investment risk than major companies. However suppose a qualifying BPR investment of 100,000 had fallen in value by 30%, the beneficiaries would still receive 70,000 instead of 60,000 after tax. 

A very important point is that funds invested within an ISA that qualify for BPR are still your money. You can spend it, take “income” from it and it is yours to deal with as you see fit, basically you are still in total control of your own money.

Many people seek our advice when a power of attorney has to be used for the first time to look after an elderly relative’s financial affairs. Investing in companies that qualify for BPR is a perfectly legitimate way of potentially reducing IHT. 

So this ISA season talk to an IFA about IHT and BPR and have control over your own money, enjoy tax free “income” if you need it, avoid Income Tax and Capital Gains Tax and save your families Inheritance Tax.


If you would like further details of what services an IFA can offer you please contact Georgina on 01277 630873

Don't wait for a rainy day!


How often have we heard the plaintiff cry of the small business owner: “I’m drowning in paperwork!”

The rules and regulations surrounding the setting up and management of a small business can seem incredibly daunting.  Even when it looks like everything is in place, changing legislation can catch out even the most savvy business owner.

One such example is The Small Business, Enterprise and Employment Act 2015.  This legislation brings in various changes to procedures and requirements under the Companies Act 2006, including the replacement of the annual return with a ‘confirmation statement’ and the need to register people or bodies who have significant control over your business. 

A confirmation statement will have to be submitted to Companies House by every company within fourteen days of the end of the relevant ‘review period’.  In a similar manner to the old annual return, the confirmation statement must detail certain changes to the company, including:

Details of any changes of registered office, the location where company books are kept and/or changes to principle business activity;
Details relating to directors, company secretaries and persons with significant control;
Changes to shares (where applicable), which will necessitate a statement of capital to be provided, and details of any changes to shareholders

A further significant change is the requirement to register any bodies that have significant influence over companies or limited liability partnerships, known as persons with significant control (PSCs).  This will include individuals holding 25% or more of the share capital in the company or individuals who have the ability to exercise 25% of the voting rights.  Who else may be considered a PSC is not clear and we are still awaiting Governmental guidance. 

As with much business legislation, company secretaries or directors who fail to comply with these changes will be committing an offence and could, potentially, be fined.

At Birkett Long we know how difficult it is to keep up with legislative requirements.  Our new fixed fee service makes the process simple.  We provide you with up to date and cost effective documentation, which is available via online questionnaires.  Visit www.birkettlong.co.uk/smallbizforms for more information.

If you require help with any legal aspect of setting up or running a business or have questions regarding your current annual return, please contact Emily Brown at Birkett Long LLP.

Emily Brown
01268 824936