Succession planning is a complex and arduous affair at the best of times. There is a diverse number of challenges to consider that require a range of solutions to achieve the desired outcome for the client. Perhaps given the uncertainty we all face in today’s climate; flexibility is the most critical of all considerations.
One of the most flexible options for those looking at IHT and succession planning is through business relief (BR). As an investment incentive BR is simple and straightforward. It enables assets to obtain relief faster than trusts or gifts and, most importantly, is done in the client’s name so there is no loss of control for the investor over their capital. If an investor has held shares in qualifying businesses for a minimum of two years and holds them at the date of death, the shares may qualify for BR, and therefore are not be liable for any IHT.
Today, there are a number of BR strategies that can enable clients to invest for future generations whilst helping the UK economy build back better. One option is investing via companies that provide funding in the form of leasing and lending. These companies can, in some instances, provide funding to a huge range of organisations from the NHS to smaller firms across the UK, supporting UK growth, employment and services.
This is often termed direct lending and is an area that has historically only been open to banks and large financial institutions. However, over the last two decades it has increasingly become open to a wider group of investors. Advisers that choose this option can help their clients mitigate their IHT liability, diversify their investment portfolio, and support two areas of the economy that would particularly benefit from further support – SMEs and the public sector.
Other areas of consideration include trusts, which are often utilised when it comes to succession and IHT planning. However, they can be complex to set up, often requiring specialist advice, leading to potentially higher costs. There is also the question of time: trusts can often take seven years until they are fully exempt from IHT, rather than two which is the case for business relief qualification. With one eye on the future, it is sensible to try and retain as much flexibility in the planning as possible – something that business relief offers.
The needs of public sector organisations including the NHS are well suited to leasing and lending. That’s because the provision of operating and financing leases can significantly ease capital expenditure strain and reduce procurement timeframes, enabling the efficient delivery of critical equipment and resources.
Given how stretched and hard-pushed the UK’s health service has been over the 18 months, timely access to equipment has been critical, and this is an area leasing is well suited to. For example, in April 2020, Triple Point fulfilled a request from a regional county hospital to provide ventilators for its Intensive Care Unit. In a process that often takes months, Triple Point was able to issue the order to the ventilator supplier in fewer than five hours after the lease was verbally awarded to Triple Point.
There are ways for advisers and clients to include leasing and lending investments in their portfolios. As an example, Triple Point’s Estate Planning Service, consists of two strategies which provide access to specialist businesses that arrange funding for the public sector (Local Authorities, the NHS and Housing Associations) and private corporations; both large and tens of thousands of UK SMEs. Through a single strategy or a blend of both, investors can target consistent, positive performance through full economic cycles, while achieving 100% relief from IHT on the amount invested after two years through business relief. Given the tangible benefits that can be delivered, leasing and lending strategies represent a win-win for both investors and society.
Belinda Thomas is a partner and head of sales at Triple Point.