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Act sooner, not later, to avoid inheritance tax; ADVERTISING FEATURE Independent financial advice.

PAUL Brokenshar of Investec Wealth and Investment recalls a Commons debate in 1986 when Roy Jenkins MP described inheritance tax as being "a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue."

He explains that inheritance tax is levied at a rate of 40% on assets exceeding the nil rate band of PS325,000 per person. For married couples, the executors for the second spouse to die could in some cases claim two nil rate bands.

Nevertheless, even with two nil rate bands available, an estate valued at, say, PS950,000 would still suffer an eye-watering inheritance tax bill of PS120,000.

Paul agrees with Roy Jenkins' statement and questions why anyone would leave a large part of their estate to the Government when it could, with careful planning, be left tax-free to their family.

He says there are a number of steps that you can take to reduce inheritance tax liabilities; you can give assets away or utilise trusts. It does, however, take seven years for this type of planning to be effective, so this may not be a realistic option for those who have left things late.

He said: "The quickest way of making a significant dent in your inheritance tax liabilities is to invest in assets that qualify for Business Property Relief (BPR), as this will give you relief from inheritance tax after just two years."

Paul reports that most UK companies listed on the Alternative Investment Market (AIM) qualify for BPR, and an investment in these companies would be exempt from inheritance tax after two years as long as the shares were still qualifying shares for the purpose of BPR and continued to be held at the date of death. If the value of the qualifying portfolio was PS100,000, for example, at the date of death then the inheritance tax savings would be PS40,000.

And he says in addition to the accelerated tax relief, AIM portfolios offer more flexibility than gifts and trust planning as you would have full access to the investment and the income thereon.

Paul says AIM stocks are generally higher risk by comparison to an investment in the main UK Stock Exchange. There are, nevertheless, a good number of companies listed on AIM who are well established with sound balance sheets and strong cash flow, and if the portfolio is professionally researched and managed then the investment risks can be minimised somewhat.

Paul also states that inheritance tax planning is a complex area, and professional advice should always be taken. You should not invest in AIM stocks without taking professional advice first. ? Paul Brokenshar is a chartered financial planner and an affiliate of the Society of Trust and Estate Practitioners. He provides independent financial advice and can be contacted at paul.


Paul Brokenshar of Investec Wealth and Investment
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Publication:Daily Post (Conwy, Wales)
Date:Dec 16, 2013
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