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Do your clients’ ISAs need an IHT solution?

 

“The happiest mourner at a rich man’s funeral is usually Uncle Sam.” Richard Miller

 

Whilst Richard Miller was talking about America, a fast-growing number of UK estates are subject to Inheritance Tax (IHT). Last tax year, IHT receipts surpassed £5bn for the first time, having increased 8% from the previous year[1] – and they’re forecast to keep rising considerably. Indeed by 2023-24, the Office for Budget Responsibilities estimates that IHT receipts will have doubled in the space of a decade.

 

What’s behind the rise in IHT receipts?

IHT is charged at 40% on taxable estates that are valued over a threshold of £325,000 per individual. This ‘nil rate band’ has been frozen since April 2010, although married couples and those in civil partnerships can combine their nil rate bands to pass on £650,000 to their heirs. In 2017, the ‘residence nil rate band’ was introduced to provide an additional level of shelter. However, its practical impact is reduced by its limitations.

 

Against a frozen nil rate band, the key factor driving many more families into IHT liability is rising asset values. According to HMRC’s latest Inheritance Tax Statistics, properties, securities and cash savings make up the top three ingredients of taxpaying estates[2]. And with the average national house price rising by a colossal 43% in the past decade[3], many homeowners will breach their nil rate band simply through the value of their primary residence.

 

The appeal of ISAs

ISAs remain a popular choice for both cash savings and stocks and shares investments. In fact, HMRC’s ISA statistics for the 2016-17 tax year show that the total value of Adult ISA holdings stood at £608bn, an increase of 4% on the year before[4]. Meanwhile, the market value of ISA funds held in stocks and shares increased 7% from the previous year.

 

An ongoing challenge investors face, however, is that while ISAs are extremely tax efficient during a holder’s lifetime – enabling them to accumulate gains free of both income tax and capital gains tax – on death, they fall within the taxable estate and will be subject to IHT if the estate exceeds the nil rate band.

 

Can ISA IHT liabilities be mitigated?

Yes, there is a solution to help advisers mitigate clients' potential IHT liabilities – without requiring a complex structure or reducing their access to capital. This estate planning solution uses Business Relief, which was first introduced in 1976 and helps promote investment into growing UK businesses. 

 

A range of UK private companies qualify for Business Relief, including many stocks quoted on the Alternative Investment Market (AIM). If a client holds an investment in a qualifying business for a minimum of two years and at the point of death, that investment is excluded from their taxable estate and is free from IHT.

 

As from 2013, investors can also hold AIM stocks via an ISA, which means they can enjoy the IHT benefits of Business Relief whilst maintaining the traditional tax benefits of the ISA wrapper. Advisers can start clients on the path to mitigating IHT by allocating this year’s ISA allowance of £20,000 to an AIM IHT service.

 

The Puma AIM IHT Portfolio Service

Puma’s AIM IHT Portfolio Service seeks to offer investors the potential growth opportunities of a carefully selected portfolio of AIM stocks combined with the benefits of IHT mitigation. And investors can choose to invest either within or outside an ISA wrapper, or through a combination of both.

 

The Service can be accessed directly as well as via leading adviser wrap platforms Ascentric, Standard Life and Transact, which enables advisers to retain the benefits of keeping clients on a platform. In fact, the platform makes it possible for a client to hold multiple discretionary fund manager propositions in the same tax wrapper, creating a flexible approach to risk-targeted investing that delivers both specialist estate planning and growth solutions.

 

Highly Commended for Best AIM IHT Portfolio Service at Investment Week’s Tax Efficiency Awards 2018-19, and winner of the Growth Investor Award for Best AIM Investment Manager in 2017 and 2016, the Puma AIM IHT Portfolio Service has delivered strong growth for investors since its launch in 2014. It has outperformed the FTSE AIM All Share Index by over 23% in the same period and an investment of £100,000 in the Service at launch would be worth £139,700 at the end of January 2019.

 

If your clients could benefit from investing in the Puma AIM IHT Portfolio Service – either outside an ISA or via a new or existing ISA – contact our Business Development Team who’ll be happy to help. You can also learn more about the Service on our AIM webpage.

 

 

 

This communication is a financial promotion issued by Puma Investments in accordance with section 21 of the Financial Services and Markets Act 2000. Puma Investments is a trading name of Puma Investments Management Limited which is authorised and regulated by the FCA (FRN 590919).

Risk Factors

An investment in the Service carries risk and may not be suitable for all investors. Investors can only invest in the Service through a financial adviser who has assessed that an investment in the Service is suitable.

Past performance: Past performance is no indication of future results and share prices and their values can go down as well as up.

Tax reliefs are not guaranteed: Tax reliefs depend on individuals’ personal circumstances, minimum holding periods and may be subject to change.

You may lose money: An investment in smaller companies is likely to be higher risk than other investments. Investors’ capital may be at risk and investors may get back less than their original investment.

Long-term investment: An investment in the Service should be considered a long-term investment.

Potentially illiquid investment: AIM stocks are largely small and illiquid. They are characterised by significant spreads and low trading volumes. It may prove difficult for investors to realise immediately or in full proceeds from the sale of such shares.

 


[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/731610/Inheritance_Tax_National_Statistics_Commentary.pdf

[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/730130/Table_12_4.pdf

[3] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/december2018 

[4] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/737394/Full_Statistics_Release_August_2018.pdf