Financial advisor Arnold Aaron on a recent case where a different approach might have saved significant sums of Inheritance Tax.
As a Financial Advisor, I network with accountants and lawyers. My aim is to demonstrate how I can help their clients by advising them on appropriate tax saving investment products, sometimes with a bit of creativity and 'out of the box' thinking, to achieve their financial aims, particularly in the realm of Inheritance Tax planning.
I recently met a partner at a firm of accountants. I ran through my usual presentation, firstly demonstrating the Discounted Gift Trust, and then moving on to Business Property Relief products. At this point, I always make a point to ask if they have any clients who've recently sold their business and are in poor health - and for good reason...
If one sells their business, Replacement Property Relief (BPR)allows one to re-invest the sale proceeds within 3 years in a BPR investment, and get INSTANT and full Inheritance Tax relief on those funds. No need to wait 2 years. This is the classic case of legitimate and perfectly legal, non-contentious, deathbed tax planning. In fact all those who have sold their business should invest in a BPR investment right away, irrespective of their health, to immediately shelter it from IHT.
I pointed this out - as I normally do, and the accountant immediately said he wished he'd met me 2 years ago. He told me about a client of his whom he had guided on selling his business. The business sold for £5m but shortly afterwards the client was diagnosed with a terminal illness. The accountant, having successfully advised on the sale was none the wiser about IHT planning at the time. The client sadly passed away soon after, and his children paid 40% Inheritance Tax on that sum - a whopping £2m bill which could have been completely avoided had they invested in a BPR investment prior to his death.
Was the accountant at fault for not knowing about Business Property Relief investments? Perhaps not. Most accountants are not licensed to give investment advice, so one couldn't really fault him for that.
Was the accountant at fault for not having regular contact with a Financial Advisor experienced in advising company directors and addressing the issues they face? Was the accountant negligent in not seeking outside professional advice to address the IHT position following the sale? I'll leave you to draw your own conclusions on those questions.
But the point here is that engaging regularly with an experienced Financial Advisor, for example, one specialising in IHT, really can add significant value to the Client Proposition of any accountancy or law firm. With accountants, in particular, having a front-row seat on their clients' financial and business affairs, it pays dividends to ensure an introduction to the right professionals.
Many a time I've met accountants who have responded "my clients don't invest in products", and the most shocking and ignorant response I've had so far was one who told me he advises against IHT planning because it can leave the client short of funds, so he simply tells them, "It's not your problem, let your children pay it". Make what you will of that, but it shows the narrow-minded attitude of some ultimately means their own clients lose out.
I must therefore take this opportunity to ask all accountants and lawyers out there...."Do you have any clients who have recently sold their business and are in poor health?"