Inheritance tax – Investors who require access to their investment

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

This article is adapted from Octopus Investments' publication "Identifying clients who could benefit from BPR-qualifying investments" and it is reproduced with its permission. Read more about Octopus Investments

The article has been written in accordance with Octopus Investments’ understanding of the law and interpretation of it at the time of publication: remember tax rules can change and benefits depend on circumstances.

Important:The example scenario that follows is for illustration purposes only and assumes that the nil-rate band is offset against other assets. It is important to note that the risk profile of each portfolio, and any investment growth or losses, is likely to differ. The tax benefits of the BPR portfolios could mitigate the additional risks investors are taking with their money. The scenario assumes the costs for each portfolio are the same, but actual costs may be different.

Carol doesn’t want to lose access to her capital in later years

Carol is 80 years old and has inherited assets valued at just over £1.5 million from her late husband – including a house worth £700,000, a large investment portfolio and some savings in fixed-term bonds.

Although she understands that her estate will leave her beneficiaries with an inheritance tax liability, she is reluctant to make gifts for several reasons. 

First, she wants to leave money to her grandchildren, but they are young and she worries how they will spend it. Second, she worries about needing money for care home fees if her health deteriorates. Third, she is concerned that if she gives away assets and doesn’t live for seven more years, she’ll leave her beneficiaries with potential inheritance tax bills.

How a BPR-qualifying investment could help

As BPR is a relief that applies to an investment, the investment stays in the investor's name and offers ongoing access to capital.

Carol could consider selling £500,000 of her existing share portfolio and reinvesting the proceeds in an Inheritance Tax Portfolio, such as the Octopus Inheritance Tax Service.

Such an investment could allow Carol to make ad-hoc requests to sell some of her shares if she needs access to her capital.

And if she finds that she needs to access her investment more regularly in the future, she could set up regular withdrawals, as well. However, like all investments that qualify for BPR, liquidity cannot be guaranteed.

Provided the BPR-qualifying investment has been held for at least two years, the shares can be left free from inheritance tax to Carol’s grandchildren when she passes away. She will have access to her investment during her lifetime, meaning that she can meet any future care fees or other costs by selling some or all of her investment.

For most investors, withdrawals could be below their annual capital gains tax (CGT) allowance, so there would be no CGT to pay on the proceeds from the share sales.

Remember, shares sold or money taken out of the investment will no longer be exempt from inheritance tax.

Key investment risks

  • The value of a BPR-qualifying investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
  • Tax treatment depends on individual circumstances and could change in the future.
  • Tax relief depends on portfolio companies maintaining their BPR-qualifying status.
  • The shares of unlisted or smaller companies (including AIM-quoted shares) could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
  • BPR-qualifying investments are not suitable for everyone. Neither Wealth Club nor Octopus Investments offer investment or tax advice or personal recommendations. If you are unsure an investment is right for you, please seek specialist advice. 

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Important: The information on this website is for experienced investors. This is a very short summary of a complex subject. It is not advice nor a personal recommendation. This article is intended solely to provide basic information – neither Octopus Investments nor Wealth Club offer investment or tax advice. If you are unsure, please seek specialist advice. Investments that qualify for inheritance tax relief place your capital at risk, and the value of the investment can fall or rise.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

Octopus Inheritance Tax Service

The largest service of its kind, it gives experienced investors an opportunity to protect their assets from inheritance tax.

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