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HMRC IHT Statistics and the trends they reveal

The latest IHT statistics, released by HMRC at the end of July 2018, reported that IHT receipts totalled £5.2bn in 2017/18 – an increase of 8% (£388m) compared to 2016-17. This number has been increasing since 2010/11, so is confirmation of the trend, rather than any great surprise.  More interestingly, the statistics confirm property values as a massive driver of growing IHT receipts; 54% of the increase in net capital value of estates since 2009/10, which more than quadrupled from £17bn to £79bn, is derived from residential property.

Additionally, these jumps in estate values are not just concentrated in the hands of a super-rich few, pushing up the amount of IHT collected by the government. In fact, more and more people are finding themselves within IHT’s reach; the total number of liable estates has increased every year since 2009-10. In 2015-16 there were 24,500 liable estates, an increase of 1,300 since 2014-15.

While spousal transfers and transfers to charity are the most used IHT reliefs, HMRC’s commentary accompanying the figures is a testament to the value of Business Relief (referenced by HMRC as Business Property Relief) as a tax efficient method of passing funds to the next generation:

“the composition of assets changes between the various net estate bands. Where net estate value is less than £2m, estates are likely to consist mainly of residential property and cash. Above this limit, estates are more likely to consist of securities and other assets, which attract reliefs like Agricultural Property Relief (APR) and Business Property Relief (BPR). This has a tendency to lower the average tax rates.”

The suggestion that higher value estates are making better use of Business Relief points to a large subset of smaller estates that could be well-served by Business Relief advice.

The good news is that there is an option for advisers looking to resolve this issue for their clients; Oxford Capital’s Estate Planning Service provides both real returns and the flexibility and control of allowing investors to switch* between growth, income and access options as circumstances change. (*Fees apply)

For more information on Oxford Capital’s Estate Planning Service, click here.

Estimated reading time: 2 min

 

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  1. You could lose all the money you invest
    1. If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
  2. You are unlikely to be protected if something goes wrong
    1. Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
    2. Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
  3. You won’t get your money back quickly
    1. Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.
    2. The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
    3. If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.
  4. Don’t put all your eggs in one basket
    1. Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
    2. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest
  5. The value of your investment can be reduced
    1. The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
    2. These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

 

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.