Inheritance tax – Investors with a power of attorney in place

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.

Where a lasting power of attorney is in place, the ability to make gifts is very limited without approval from the Court of Protection.

But by investing in shares that are expected to qualify for BPR, just like any type of investment, the shares remain the property of the investor.

Tom has lasting power of attorney over his aunt’s assets

Tom has power of attorney over his aunt Eve’s affairs. Eve, who is 84, consolidated her assets and converted them into £850,000 cash before entering a care home. She often discussed estate planning with her family but didn’t put any plans in place before losing capacity to make her own decisions.

Following the death of her husband, Eve has a nil-rate band of £650,000, but faces leaving behind an inheritance tax bill on the remaining £200,000.

Tom has lasting power of attorney over his aunt’s assets, and the circumstances in which gifts can be made from his aunt’s estate without Court of Protection approval are limited. In any event, gifts will take seven years to fully fall outside of Eve’s estate for inheritance tax purposes.

Tom is one of three beneficiaries of Eve’s will, alongside his brother and sister.

How a BPR-qualifying investment can help

Tom needs to ensure that any investment decisions are made in his aunt’s best interests and won’t disadvantage her, for example, by making her money inaccessible.

Tom could consider investing £200,000 on his aunt’s behalf in a BPR-qualifying investment. The investment is made in Eve’s name, meaning she retains ownership of her wealth.

As long as Eve has held the investment for at least two years when she dies, she can leave the shares to her beneficiaries free from inheritance tax, saving the three beneficiaries an inheritance tax bill of £80,000.

Unlike estate planning strategies that rely on life assurance, there are no underwriting or complicated medical forms to complete – the application process is straightforward. Withdrawals can be requested at any time, for example, if Eve requires additional funds for care home fees. It’s important to remember that any withdrawals will be facilitated by the sale of shares and so can’t be guaranteed. 

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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