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Once you move from the realm of the High-Net Worth to the Ultra-High Net Worth, the range of schemes and products that can be employed for IHT-mitigation increases, but so does, in many cases, the risk involved.


It is essential to remember that most of these schemes are designed for investors who have various other sources of (secure) income and significant capital assets. Just because you have a few million £ to spare does not necessarily mean that your attitude to risk is higher than if you 'just' had say £400,000!





If you have significant liquid assets, the possibilities are open to invest in assets qualifying for Business Property Relief (BPR) and use other quite generous IHT-mitigating schemes. Often, investments in such schemes will fall out of your estate already after just two years of ownership rather than after the usual seven.


However, most of these schemes do carry an added degree of risk which should not be ignored or dismissed.


Various investments, including partnership interests, agricultural land, forestry, shareholdings in unquoted companies (including AIM) and enterprise investment schemes (EISs), may qualify for BPR but for many older people whose primary objective is to preserve their capital and reduce a potential IHT burden, the main options are typically either an EIS or a packaged AIM portfolio.


1. Enterprise investment Schemes [EIS]


EIS schemes can in some cases be excellent planning tools for wealthier people as they carry income tax benefits of 30% and a capital gains deferral at up to 28% in addition the IHT relief after only two years' investment.


Historically speaking, EISs have been considered high-risk options, but some providers are beginning to focus on making them less risky for elderly and/or more cautious investors


It deserved to be mentioned that even where EIS investments fail, there are certain income tax reliefs on the 70% capital at stake after the income tax allowance on the investment. However, it must be stipulated that that is of course only the case IF the investor does pay income tax!


2. Alternative Investment Market [AIM] portfolio schemes


These schemes invest in a selection of shares of companies quoted on the AIM market.


AIM quoted shares are normally in small companies and are likely to be rather volatile and can carry a high risk of very significant capital loss. As such, they are only appropriate for elderly investors with a very high appetite for risk and significant capacity for loss.


You should also be reminded that although it normally is easy enough to cash in your AIM holdings and withdraw your cash if you need to at a later date, any such action will return the assets back into your estate again.


3. Business Property Relief [BPR] schemes


These IHT mitigation schemes have the same tax treatment as AIM portfolio services (i.e. shares fall out of your estate after two years' ownership), but generally have a lower degree of volatility.


They generally hold unquoted shares in businesses that are somewhat ‘unexciting’ but reliable, including farming, forestry, house building and commercial storage. The minimum investments are normally in the range of £25,000-£100,000.



4. Agricultural Property Relief [APR]





In addition to some potentially significant IHT-advantages, other perceived attractions of owning farmland include the lifestyle and often status it confers upon the landowner.


For IHT purposes farmland is defined as land in the UK occupied wholly or mainly for the purposes of husbandry such as the production of cereals, milk, dairy products, livestock and their products.


For IHT purposes, farmland is also extended to include ancillary woodlands and any buildings used in connection with the farming business and the occupation of which is of a character appropriate to the farmland. This can include cottages, farm buildings and farmhouses. Farmland is also extended to include stud farms.


There are two principal reliefs from IHT, namely Agricultural Property Relief (APR) and Business Property Relief (BPR). Both of these reliefs, subject to certain ownership conditions, operate by reducing the value of qualifying assets liable to IHT.


The current (2012/13 tax year) reductions are as follows:


100% for the agricultural value of farmland, including farmland under certain tenancies which commenced after 31 August 1995


50% for the agricultural value of most other tenanted agricultural land


50% for land, buildings and certain other assets used in a farming partnership or company, but owned personally (and not otherwise covered by agricultural property relief)


The effect of these reliefs is to remove much farmland from the charge to IHT.


However, significant care is needed if the land or farm buildings have development or amenity value and are owned personally and used by a farming partnership or company. In these cases, relief may be restricted to 50% of the development or amenity value and hence the business structure can be important.


The availability of APR on the farmhouse is unique, reflecting the close involvement of the farmer with the business. However, this means that the appropriateness of the farmhouse in many cases will be closely scrutinised by HM Revenue and Customs (HMRC).


If for instance, the agricultural value of the farmhouse is less than the market value, the level of APR can be restricted accordingly.


To qualify for APR, the farmland must either:


       A.  Have been farmed in hand by the farmer for two years, or

       B.   Have been owned by the farmer for seven years and used by someone else (e.g. tenant) for the sole

             purposes of farming.


Land ownership has often been linked with tenancies in the past, as this allows the landowner to divest him/herself of the day–to–day management of the farm. However, the capital tax disincentives have encouraged new vehicles for carrying on farming on the farmland, such as share farming and contract farming. Provided that these agreements are structured carefully, these may allow the landowner to be treated as a farmer by HMRC while reducing day-to-day farm management.


It should be stressed that simply becoming a ‘hobby-farmer’ for the sole purpose of reducing a potential IHT-liability could be foolhardy and potentially both very perilous and costly, unless the full extent of the underlying commitments and regulations are understood in their entirety.



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