Is there way to help reduce my inheritance tax using my ISA portfolio?

In recent weeks, I been having discussion with some of my elderly clients with their family members about the impact of inheritance tax. This is a major concern especially if they are widow / widower and want pass the majority of their assets to their children. The changes brought in earlier this year with the “Residential Nil Rate Band Allowance” has helped but over the years they have accumulated vast wealth in their ISA portfolios.

Business Property Relief scheme.

An alternative strategy for consideration is utilising an ISA that invests on the Alternative Investment Market (AIM). AIM is specifically designed for smaller growth companies and is therefore higher risk than the main FTSE 100 index. However, investments in such companies are excluded from the value of your estate for tax purposes after they have been held for two years. Business Property Relief (BPR) as it is known, is designed to encourage investment in these smaller next generation companies.

However, many companies listed on AIM have been established for many years and offer more security. The ISA manager will invest in a range of AIM listed companies and, bearing in mind the likely reduced risk appropriate for elderly investors, will favour more mature companies where possible.

The main consideration is the individual’s income and expenditure. If there is no requirement for any additional income from the ISA portfolio as the individual has guaranteed income from various pensions, and this cover the immediate expenditure needs, then a BPR ISA could be considered.

If there is a requirement in the future, the individual could draw money from this investment which could assist any long-term care or later life needs. This BPR ISA would still be “means tested” for long-term care state benefits.

By using this type of investment helps the individual to maintain the ownership they want, mitigating the effects of inheritance tax after 2 years as well as maintaining accessibility to the funds in a tax efficient manner.

There are other solutions for mitigating the effects of Inheritance Tax and this article is just one of many. As this is a specialist area of advice and it is important to seek out this information from an appropriate financial adviser. We have this specialist knowledge and are always available to answer your questions.

Nigel Taylor CertPFS, DipFA

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case. It does not constitute legal or tax advice and must not be treated as such. All statements concerning taxation are based on our understanding of the current law and HMRC practice, and proposed changes, as at the date of publication. Levels and bases of, and reliefs from, taxation are subject to change. The provision of advice in relation to taxation is not a regulated activity. The value of investments can fall as well as rise and you may not get back the full value of your investment.