Tax Mitigation

Investment and tax mitigation under the UK’s BPR scheme

Investments can play an important part in tax mitigation, particularly in areas like UK inheritance tax. Rising UK property prices are contributing to the likelihood that many UK residents will be subject to a degree of inheritance tax (IHT). In addition, the UK government has decided to freeze the inheritance tax (IHT) threshold for Business Property Relief (BPR) at GBP 325,000 (GBP 650,000 for couples) until at least 2021.

Tax mitigation can be achieved by using investments that qualify for Business Property Relief. For example, privately held, actively trading companies may be used for tax mitigation. Listed companies on the London Stock Exchange, investment funds and property will not qualify for tax mitigation, nor will shell companies that hold other assets. To qualify for tax mitigation, companies must be involved in the conduct of ‘real’ business.

Business Property Relief was introduced in 1976 by the UK government to protect privately held businesses from being sold upon the death of their founder. Such tax relief is therefore based on investments in companies that are active trading concerns, not static investments such as cash or land.

A good example of this is lending or finance companies. These are firms active in the provision of loan finance to smaller businesses in the UK. They could form part of a pre-constructed portfolio of such trading companies, with an investment manager overseeing the performance of the companies and continue to meet the requirements of Business Property Relief.

Appropriate tax mitigation under Business Property Relief requires that investments are held for a minimum of two years. Unlike other estate planning options, BPR has the advantage of not changing the legal ownership of the investment.

Individuals who are not UK domiciled may also find themselves subject to UK inheritance tax if they have lived in the UK for at least 17 of the last 20 years and may wish to consider tax mitigation options.

Tax mitigation may also be available for individuals who are considering a move overseas. If resident outside of the country of domicile, consideration might be given to regular investment plans or other international investment schemes.