According to a survey conducted by Ingenious last year* the single most important factor that motivates financial planners and wealth managers to recommend a Business Relief (BR) qualifying service to clients is the speed of IHT efficacy. BR investments should be fully IHT-exempt after just 2 years, rather than the 7 years of a Potentially Exempt Transfer (PET).
This feature makes BR-based investments attractive to clients looking for proactive estate planning solutions that allow them to retain both access and control of those assets, and even more so for those clients who may be concerned about their longevity. As clients frequently make estate planning decisions in later life, it is also likely that more clients will live for two years following an investment decision than for seven.
These drivers have led BR-based investment services to such popularity that now well over £1.5Bn per annum is invested into these solutions**. As a result, a wide variety of fund managers’ services have proliferated to support demand.
However, independent research into these solutions has so far understandably tended to focus on just one of the two major elements of a BR-based service: the underlying investment service and how that may impact a client’s outcome. Due to the common assumption that all BR-based services will produce full IHT efficacy after the same 2-year holding period, the other element, the actual estate planning impact of these services, has been largely ignored.
However, even if a “2-year plan” does have a better chance of success than a “7-year plan”, the 2-year wait may itself still be taking a significant risk with your clients’ outcomes. And should the clients’ die inside that two-year window, their desired outcomes simply aren’t being achieved when their beneficiaries are being hit with a significant IHT bill after their death. And much as we don’t want to face it, we all run the risk of dying within the next two years, regardless of our age or current health status.
So, what can be done to mitigate this clear risk and ensure we deliver on the client’s outcomes as intended?
For the last five years or more there have been some BR-based services that set up a 2-year life insurance policy alongside the investment service to cover the specific risk of the client dying within those first 2 years. If an investor dies, the life policy will typically pay out 40% of the amount invested into the service, neatly covering the IHT liability and making the investment IHT-effective from day one. However, with these services the client must pay extra fees to cover the costs of the insurance. So, whilst this helps negate the financial impact of mortality within the first 2 years, it will compromise the investment return and therefore the final value that will be passed on to the chosen beneficiaries.
This poses a dilemma to advisers and their clients. If they decide to protect themselves from the impact of IHT if they die within 2 years, they will likely compromise the return they can pass to the beneficiaries; but if they don’t pay for the life cover, they run the risk of IHT fundamentally impacting their loved ones. As a result, many decide to take the gamble and not purchase the cover.
By contrast, a BR-based service that includes life insurance as standard at no extra cost to the investor could deliver this immediate IHT efficacy without compromising on cost or investment performance – an obvious choice for investors and advisers alike.
This kind of service has never before been available on the market – until now. IEP Apex, launched in March, combines Ingenious’ proven investment strategies with life insurance at no extra cost to eligible investors. IEP Apex will ensure that in those cases where investors die within the first 2 years and therefore fail to make Business Relief status, their investment will have grown in line with the performance of the Ingenious IEP services and it will settle the IHT liability via the insurance cover, thus preserving the ultimate value of the investment. Equally, those investors who see out the initial 2-year period will be no worse off as they won’t have paid for insurance thereby protecting their investment returns.
For investors and advisers alike, IEP Apex offers a unique and reassuring way of meeting their estate planning goals immediately in one simple service via accelerated day one IHT cover (post share allotment) without having to incur expensive insurance that hits investment returns.
*Based on a webinar with 340 attendees
** TER – June 2021
Business Relief (BR) qualifying investments are very popular with advisers and investors as the investments are free of Inheritance Tax (IHT) liability after two years, much quicker than other estate planning solutions. Whilst this is appealing, an investor still has a two year wait for the investment to become BR-qualifying.
To address this problem, insurance cover has been available in the market for several years as an optional extra to protect against IHT liability during the two year qualifying period. A relatively small proportion of investors take up the option of paying for this protection, but many do not as the cost of the insurance significantly erodes investment returns. These investors prefer to wait the two years out and avoid the cost of insurance cover.
This is an understandable and typical reaction to a discretionary insurance purchase which we often make in our day to day lives if we feel the cost outweighs the risk. However, when the consequences of the event being insured can be significant, and life changing, we tend to think differently and happily put cover in place, such as home insurance. A BR investment is no different. Whilst an investor may not believe they are likely to die in the two year qualifying period, it might happen. Nothing is certain after all, other than death and taxes, the two things under the spotlight here! And, if the investor were to die in this two year qualifying period, the consequences for their beneficiaries would indeed be significant with 40% of their estate reduced via IHT, something which most people would want to avoid happening to their beneficiaries.
That’s why we developed IEP Apex, the only BR-qualifying investment with complimentary insurance cover as standard. IEP Apex gives investors and their beneficiaries peace of mind immediately following share allotment that any IHT arising in the first two years will be settled by the insurance policy, for no extra cost to the investor. No hard decisions, no trade-offs, just peace of mind from day one following share allotment.
Given the potential consequences, why would your clients wait two years for their investment to become BR-qualifying when they don’t have to?
How does it work?
The insurance policy is designed to settle the IHT liability arising in the two years post share allotment if the investor dies within this time. In year three, the investment should qualify for Business Relief as normal so it becomes IHT-exempt. It’s really that simple.
Why should you recommend it to your clients?
IEP Apex is a new type of BR-qualifying service. It is unique in that, to the best of our knowledge, no other BR-qualifying service provides complimentary insurance cover as standard to pay for the IHT liability arising if the investor dies in the first two years post investment. The insurance cover is integrated as part of the investment service. It’s simple and straightforward – there are no examinations or complicated forms, no need to assess by how much the cost of adding insurance will erode performance. Just a simple health declaration as part of the easy application process, and investors’ IHT liabilities are covered in case the worst happens in the first two years post investment.
But that’s not all IEP Apex provides. Beyond peace of mind, IEP Apex offers investors:
The IEP Apex peace of mind
At any stage of life, IEP Apex protects investors and their beneficiaries from the consequences of their estates being reduced by 40% in the two year BR-qualifying period. Why should investors wait two years for their investments to qualify for BR when they can be covered immediately following share allotment?
IEP Apex has your clients covered, just in case.
Two Ingenious-backed films, both comedy-dramas and both based on real-life stories, have been enjoying critical and box office success in recent weeks.
The first, The Duke, starring Jim Broadbent and Helen Mirren, tells the story of Kempton Bunton, a 60 year old self-educated taxi-driver, who in 1961 steals Goya’s portrait of the Duke of Wellington from the National Gallery in London in what might best be described as a philanthropic heist. Set partly in industrial Newcastle upon Tyne and partly in early ‘60s London, the film is already being cited as a comic masterpiece.
Jim Broadbent gives the performance of his life in a movie which, sadly, was the last feature film to be directed by the great Roger Michell, who died in September 2021. It was awarded five stars by The Guardian and the Daily Telegraph at its world premiere at the Venice Film Festival in 2020. The film’s theatrical release was delayed by Covid but has been a great hit with the public since it opened in February.
The second film, Phantom of the Open, directed by Craig Roberts, stars Mark Rylance as Maurice Flitcroft, an amateur golfer, dreamer and unrelenting optimist, who succeeded in gaining entry to the British Open Golf Championship Qualifying Competition in 1976 where he shot the worst round in Open history, infuriating the golfing establishment and becoming a folk hero in the process. Also starring Sally Hawkins and Rhys Ifans, the film is remarkable for Mark Rylance’s perfectly pitched performance as the defiantly hopeful amateur Flitcroft, a role which the actor plays straight to great comic effect.
Phantom was released in March in the UK and, like The Duke, is proving immensely popular. This is a relief for the whole industry. Over the last two years the pandemic has cast a large shadow over the theatrical box-office for film, with cinemas closed for long periods and audiences evidently reluctant to return other than for occasional super-hero Hollywood movies like The Batman and action-thriller blockbusters like the James Bond film No Time to Die.
But the tide is now turning, and it is high quality, quintessentially British films like The Duke and Phantom of the Open that are currently proving instrumental in attracting nervous audiences back to broader cinematic fare. Ingenious is delighted to have worked with long established partners the BFI, BBC Film, Pathe, eOne, Cornerstone, Baby Cow and Screen Yorkshire to bring these two films to the public. Both films will shortly be released in the United States by Sony Pictures Classics.
On 23rd March it was announced that the NFTS Board of Governors had appointed Sophie Turner Laing, former CEO of Endemol Shine and MD of Sky, as its new incoming Chair. She becomes the School’s first female chair, succeeding Ingenious founder Patrick McKenna, who will step down at the end of his final term in August, having held the post since 2013.
The NFTS, which has some 600 students studying a wide variety of industry focused MA courses, Diplomas and Certificates covering the whole screen sector, from film and TV to animation and games, has regularly featured in The Hollywood Reporter’s annual ranking of the world’s top ten film schools. It has been described by The Guardian as the world’s best film school, reflecting the fact that the School’s graduates are invariably snapped up by industry on graduation, demonstrating the unique strength of the School’s distinctive teaching model, which is strongly influenced by commercial partners. These include the BBC, Channel 4, Sky, Disney and Amazon.
Patrick’s leadership of the School has been transformational. It has greatly expanded its educational footprint, with the opening of state-of-the-art equipped premises in Beaconsfield and new teaching facilities in Glasgow (NFTS Scotland), Leeds (NFTS Leeds) and Cardiff (NFTS Wales). The number of students taught has more than doubled, whilst the progressive change in the School’s gender and ethnic balance within the student body has set the standard for improving performance on diversity in recruitment.
We are very pleased that the Court of Appeal reversed the findings of the Upper Tier Tribunal and ruled that our film partnerships were, as we have always contended, trading with a view to profit. In light of this judgment we are considering what further options are open to us in relation to these proceedings.
Life was good in 1967 Britain; the first colour television broadcast was made on BBC2, Sandie Shaw won the Eurovision Song Contest and Beatlemania was in full flow. August 1967 was particularly sunny and warm and annual price inflation (RPI) sat at just 1.4%1.
Within 12 months, RPI reached 5.7%, subsequently remaining above 5% for THIRTEEN years, including five years above 10%, and peaking at an eyewatering 26.9% in August 1975. From 1967 to 1983, inflation averaged 11.1% per annum, and the price of goods increased by 540%, having a devastating impact on the standard of living.
Those who were starting out in life in 1967, looking to buy a home and raise young families, are now in their 70s and 80s with very different aspirations and concerns. But if inflation makes a comeback, as is expected, what does this mean for them now that they are retired and for their later life and estate planning considerations?
Most people in later life have two overriding objectives; leave the best possible legacy for their family and ensure they have enough money to meet their own life needs. The two are not mutually exclusive as their accumulated wealth may need to be used for either purpose depending on how life pans out. Advisers therefore need to help them plan for all possible eventualities.
Inflation and capital taxes
Let’s consider the impact of inflation on legacy aspirations. In March 2021, the Chancellor froze all Inheritance Tax thresholds until 2025/6. In an inflationary environment where asset prices, particularly property values are increasing, more estates will be dragged into paying Inheritance Tax. Those who are not actively looking to sell their properties may be blissfully unaware that their assets have crept above the nil rate band and the prospect of IHT being levied on their estates may come as a surprise to them. For those with assets above £2m, again likely to be a growing number, Residential Nil Rate Band taper will accelerate as the value of their estate grows and so they may not enjoy the same level of relief they had been expecting. Gifting of IHT exempt assets, such as Business Relief (BR)-qualifying assets may be considered as a way of mitigating this.
Similarly, more clients could be dragged into the Capital Gains Tax net if they wish to crystalise gains made on other assets. Keeping track of rising asset values relative to tax exemptions and thresholds could make a real difference to the legacies clients are able to leave to their beneficiaries, or to the amount of money available for clients to pay for their own life needs. Proactive management will become an increasingly important aspect of the adviser role in an inflationary environment.
The ‘Real’ value of money
Many clients looking to maximise their legacies whilst maintaining access and control consider BR-qualifying investments, of which there are now a variety on offer from a number of investment managers. Many of these have a “capital preservation” focus and target modest returns, some as low as 1.5% p.a. and numerous around 3% p.a. Inflation has been low since the market for these products was developed, allowing investors to maintain the real value of their investments, but with little room to manoeuvre for any bumps in the road. Indeed, in recent times some services have struggled to meet these targets due to volatility in energy related assets.
Whilst the Office for Budget Responsibility (OBR) medium-term forecasts for RPI are around 3%2, Deutsche Bank has warned of a global inflation time bomb, with inflation re-emerging in 2023 at a level which “could resemble the 1970s’ experience”. It has to be said that this is not a widely held position but not many people expected to see double-digit inflation figures when they were enjoying the summer of 1967!
Even if the OBR are correct, some BR-qualifying portfolios would be struggling to preserve capital in real terms. It is vital therefore that advisers look towards services which can offer greater returns, and low costs, so that legacy aspirations can remain intact.
Rising costs of raw materials and energy lead to higher prices for consumers and a poorer standard of living if incomes cannot keep pace with expenditures. This is at its most acute for those in retirement, who often rely on savings to supplement their income, and where pensions maybe index-linked but ‘real inflation’ is growing at a faster rate than the index. In this situation, a planned legacy may now need to be repurposed to meet life’s needs.
Accessibility & liquidity
Strong performance and minimising tax deductions on withdrawals can make money go further, but accessibility is a pre-requisite in this scenario. Whilst BR portfolios are favoured by many as they are, in principle, more accessible than most trust-based estate planning strategies, liquidity within the underlying companies and investments varies significantly. In challenging times, physical assets can prove difficult to sell in a timely manner and at a favourable price, even those shares listed on AIM may not be as readily realisable as they appear. Holding cash for liquidity purposes would become too much of a drag on returns in an inflationary period. This could explain why there is a trend developing towards secured lending-based investments where no trade or asset sale is required as there is natural liquidity within lending books.
Care provision
We all know that more and more people will need care of some description in later life. We know that it is expensive and can wipe out a lifetime of saving in next to no-time. Care provision is, by definition, a very personal service, delivered by caring individuals, who have bills to pay and who will face rising costs themselves. Ignoring for one moment any cost of goods, the inflationary surge in labour costs in the care sector alone will lead to significant increases in care fees. Obtaining professional guidance to navigate the care system, securing great care at the best possible cost will become increasingly important for families who want the best for their loved ones.
The value of advice
Only 5% of the UK population are over the age of 75 and will remember what it was like having to deal with inflation back in the 1970s’, most financial advisers were still at school and many not even born, the experience of the client coupled with the expertise of the adviser makes for a good partnership but meeting the challenge of inflation requires product providers to support them with solutions which can provide sufficient growth, income, accessibility, tax efficiency and access to professional services in specialist areas such as care.
1Office for National Statistics, June 2021
2Office for Budget Responsibility, May 2021
Ingenious Media is proud to present two films in the upcoming Cannes Film Festival, running from 6 to 15 July, moved from its usual May berth due to the pandemic.
The first, Flag Day, is directed by Sean Penn and stars his daughter Dylan in a breakout role, together with Penn himself, Josh Brolin and Katheryn Winnick. Flag Day will hold its World Premiere in the Official Competition. Following its selection announcement, MGM acquired North American distribution rights and will release the film via its marketing-distribution joint venture United Artists Releasing in August this year. Flag Day is based on Jennifer Vogel’s memoir Flim-Flam: The True Story of My Father’s Counterfeit Life. It tells the story of the author’s coming of age, played by Dylan Penn, over two decades while navigating a fraught relationship with her beloved, career criminal father.
The second Ingenious-backed production will screen in the new Cannes Première section. Oliver Stone’s new feature documentary about the assassination of US President John F. Kennedy, JFK Revisited: Through The Looking Glass, is narrated by Whoopi Goldberg and Donald Sutherland and includes a team of forensics, medical and ballistics experts, historians and witnesses. The documentary comes thirty years after Oliver Stone’s Oscar-winning drama JFK and will feature recently declassified evidence and testimony in relation to the President’s 1963 assassination. Altitude Film Distribution will release the film in the UK and Ireland.
At Ingenious, we consider estate planning to be just one part of a comprehensive later life plan. Business Relief (BR) solutions should be approached as an investment service in their own right and not solely considered as a tax solution. Advisers should remember not to let the, “tax tail wag the investment dog.”
When it comes to undertaking BR due diligence, we have six golden rules advisers can use to position their clients for the best possible outcomes for both estate planning and later life.
Estate planning is about leaving the most to our chosen loved ones as a legacy. Individuals should therefore plan to maximise the wealth they will have to ultimately pass on to their beneficiaries, whilst considering any potential needs, such as home improvements or travel, as well as the possibility of needing to pay for care one day. As well as helping to meet any needs, strong growth is also a key weapon to counter the negative forces of inflation, so seeking a steady, long term, meaningful return is always crucial.
Costs are another guaranteed negative force on investment returns and so should be minimised. Lower costs can also reduce risk. A manager with lower fees doesn’t need to chase extra risk to cover these costs before delivering on their specified or target return, which is calculated once fees have been deducted. In addition, high costs can indicate the investment is not delivering best value to the investor, but that instead the manager is taking the significant benefit.
BR investments are investments into underlying portfolio companies, which can carry out a wide variety of BR trading activities. These companies and the markets in which they operate should be clearly understood by the adviser. BR companies tend to either own and operate assets or carry out a lending trade. Some do both. Broadly speaking, those with a higher proportion of their portfolio in physical assets will see their fortunes depend on the performance of those assets and will fluctuate on the fundamentals of the sector. Those more focused on lending should see more steady returns as they will have lent money at normally fixed rates and any market fluctuations should have less impact. The associated risks of both routes, including their sector, liquidity and valuation risks, vary widely between strategies. This should all be considered in the context of the investor. Is the trading strategy and associated risk appropriate for their profile?
When making any investment, it is crucial to purchase the asset at the correct price, taking into consideration the potential future sale value. For BR, there are two main considerations.
The first is being aware of the methodology undertaken by the manager when calculating the Net Asset Value (NAV) of the service. Owned assets tend to be more complex to value, are reliant or many variable assumptions and have more potential for subjectivity. Valuations that appear not in line with current market fundamentals or with similar services, should be assessed carefully. Lending services tend to be more transparent and less subjective to value.
The second consideration is whether the share price for incoming investors is trading at a premium to the audited NAV. If so, this should be reviewed, as it means the investor is taking on extra ‘valuation risk.’
Investors in later life do not normally wish to give up control and flexibility of their wealth to achieve estate planning or investment objectives. It can be an uncertain time and being able to adapt is key. But any access to this capital should be managed in a tax-efficient way, considering Capital Gains Tax (CGT). One way to do this is through investing with a Manager that only offers newly issued shares, rather than using matched bargains. Such shares, after a three-year holding period, should qualify for Investors’ Relief, capping CGT on any disposal at 10%, rather than the potentially higher 20%.
One in three people aged 85+ require some form of care1. As well as making the most of any investment, later life planning should seek to provide further utility, for instance, in the preparation for potential care needs. By considering the potential cost of care and practically pre-planning to meet any care needs, the investor will be equipped to make the right choices should this issue arise.
If advisers want their clients to get the most from any BR service they recommend, the use of these rules should help ensure the optimal outcomes.
1AgeUK Briefing: Health and Care of Older People in England, 2019
First published on Professional Adviser
Mindful Education were recently the Headline Sponsors of the Tes FE awards which took place virtually on 28th May. This event, which takes place on an annual basis, aims to celebrate the fantastic work and achievements of the further education sector.
London South East Colleges (LSEC), one of Mindful Education’s college partners, picked up three awards, including the prestigious ‘FE provider of the year’ award.
A number of our other college and training provider partners also went home winners, including:
You can watch Mark’s full speech here.
Ingenious is today delighted to announce that Ingenious Real Estate Finance LLP (Ingenious Real Estate) has completed four new loans totalling £52million to fund new residential developments in Liverpool and across Greater London.
In Liverpool, Ingenious has agreed a development finance facility of £32.5m over 24 months to fund the remaining construction of 1,000 student units with café, gym, cinema, dining rooms, and study rooms in the city’s Knowledge Quarter.
In London, Ingenious has agreed three loans totalling £19.8m for developments in Harrow, Hadley Wood and Croydon.
A facility of £11.4 million over a 22-month term, with a LTGDV of 70% has been agreed with developer Tremula Investments Limited to fund 40 flats in Harrow, North West London.
In Hadley Wood, North London, a £5.9 million development finance facility has been agreed with Toorak Apartments Limited over a 22-month term with a LTGDV of 66% to fund the demolition of the existing building and construction of a block of nine apartments – all completed to a high specification.
Finally, a £2.5 million facility has been agreed with Zunikh Property Developments to fund the development of six townhouses in Croydon, South London. Each unit benefits from three bedrooms, a study, private garden and roof terrace. The loan term is 18 months with a LTGDV of 70%.
These latest loan agreements represent the continued demand for residential real estate development across the UK, despite initial concerns around delays to construction as a result of the impact COVID-19 had on the sector. Previous deals this year include a £19m loan facility with property developer Citu, to fund the next 120 units at the Climate Innovation District (CID), the UK’s largest sustainable development, in Leeds; a £5.3 million loan facility to a joint venture between Indigo Capital Solutions and Blakesley Estates for a development in the seaside town of Westward Ho!, North Devon and a partnership with Piper Homes, to finance a £7.5 million loan for 26 family homes in the village of Upper Rissington in the Cotswolds.
Formed in 2013, Ingenious Real Estate focuses on providing senior development and bridging finance to well-designed schemes in locations across the UK that have a proven demand. Typical loan terms are 12-30 months, and the team has since completed more than £500 million worth of transactions. The current portfolio balance is weighted towards residential, with the majority of Ingenious developments qualifying for Help to Buy.
In September 2020, Ingenious became the first alternative lender to become a member of the UK Green Building Council (UKGBC). As part of this membership, Ingenious is actively seeking to engage through training programmes, thought leadership and access to the latest research so that it helps drive sustainable standards within the sector.
