In­vest in busi­ness to gain ISA al­lowance tax re­lief

The Herald on Sunday - - ADVERTISING FEATURE: IFA - Con­tact Ken­neth MacPhie on 0800 458 1474.

MANY savers have ac­cu­mu­lated sub­stan­tial amounts in In­di­vid­ual Sav­ings Ac­counts (ISAs), where one of the few down­sides is that its value is in­cluded in the es­tate cal­cu­la­tion for In­her­i­tance Tax (IHT) li­a­bil­i­ties.

“It is pos­si­ble to in­vest your ISA al­lowance in shares in a care­fully cho­sen port­fo­lio of com­pa­nies listed on the Al­ter­na­tive In­vest­ment Mar­ket (AIM) that qual­ify for Busi­ness Prop­erty Re­lief (BPR),” says Ken­neth MacPhie of An­der­son MacPhie Fi­nan­cial Ser­vices. “BPR is a tax re­lief pro­vided by the UK Gov­ern­ment as an in­cen­tive for in­vest­ing in cer­tain trad­ing busi­nesses.

“An in­vest­ment in this type of ISA should qual­ify for BPR af­ter just two years. This means that when the in­vestor dies, if they have held their in­vest­ment for at least two years, and pro­vid­ing they still hold it when they die, their ben­e­fi­cia­ries would not be sub­ject to IHT on the value of the in­vest­ment.

“As well as be­ing avail­able to new busi­ness, you can trans­fer ex­ist­ing ISA hold­ings which will re­tain all of their cur­rent ISA tax ad­van­tages. For ex­am­ple, there’s no in­come tax to pay on any div­i­dends and no cap­i­tal gains tax due when in­vestors choose to sell their in­vest­ment.

“Most IHT plan­ning strate­gies – such as those that in­volve the use of gifts or trusts – take seven years be­fore the amount be­comes fully ex­empt from IHT. How­ever, in­vest­ments in an AIM In­her­i­tance Tax ISA can be­come free from IHT af­ter just two years, pro­vided they are still held at the time of death.

In­vestors re­tain ac­cess to their in­vest­ment and it stays in their name. If their cir­cum­stances change, it is pos­si­ble to make life­time with­drawals from the in­vest­ment – sub­ject to be­ing able to sell the shares – although money with­drawn will no longer be ex­empt from IHT.”

Com­pa­nies listed on AIM nor­mally in­volve more risk than those on the main mar­ket of the Lon­don Stock Ex­change, and their per­for­mance tends to be more volatile. The Fi­nan­cial Con­duct Author­ity (FCA) does not reg­u­late IHT plan­ning.

The ben­e­fits of tax re­lief will de­pend on the in­di­vid­ual cir­cum­stances of each in­vestor and may be sub­ject to change. The value of in­vest­ments and the in­come they pro­duce can fall as well as rise – you may get back less than you in­vested.

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