No matter the route we take through life, every one of us eventually meets our end and while that’s an unpleasant thought for many, avoiding the topic will cost you thousands, Housden stresses.
Under current inheritance tax laws, an individual can claim up to £325,000 in an inheritance tax free amount, which includes the entire value of their property, cars, investments, cash savings, etc. For a married couple, that amount increases to £650,000.
However, any amount beyond this number is taxed at the highest rate of tax – 40 per cent – which means that for every £100,000 you leave in your estate beyond the tax free amount; your beneficiaries will lose £40,000.
After working long and hard to build up a healthy retirement pot and leave a legacy for your children, this can seem like a huge amount of money.
It is not as simple as giving your property away when you are old, as the taxman has plenty of ways of clawing back the tax.
Housden warns that any gifts are initially considered a Potentially Exempt Transfer (PET), which means money is not exempt from inheritance tax unless the person lives for at least seven years after passing on the property.
The amount of tax you pay is tapered if you live between three and seven years of making the gift, with the tax rate reduced as time goes on.
Another way of trying to reduce your bill is passing ownership of property but retaining the use of it, but this will also not work.
“People used to give away their house to their children and then say they were going to live in it, but this is called a gift with reservation and the children don’t get any inheritance tax exemption at all,” he said.
“There are very few things you can do these days to get around [inheritance tax].”
“Many investors tend to leave it very, very late,” he said. “They don’t do their research and they don’t get advice, so they don’t realise there’s anything they can do that won’t take them less than seven years.”
However, Housden (pictured) says there is one way investors can circumvent the tightening inheritance tax rules in just two years and that’s through a policy introduced in 1976 called Business Property Relief (BRP).
“The problem with inheritance tax planning is a lot of clients bury their head in the sand because they don’t want to think about the end of their own life,” he said. Under BRP, business owners are able to pass on a business – for example a family-owned company – without facing the debilitating impact of inheritance tax which could see many beneficiaries forced to sell just to foot the tax bill.
Housden says the policy has been expanded since its institution. It now covers not only a business or interest in a business but also any shares you own that aren’t listed on a recognised stock exchange such as AIM. Shares that give you control of a company that is listed on a recognised stock exchange also qualify as does any land, buildings, plant or machinery you own or was used in the business during the last two years before the business was passed on.
According to Housden, TIME Investments offers access to this form of inheritance tax relief through its TIME:Advance strategy.
The strategy invests in asset-backed businesses which qualify for BRP. Housden says they make specific trades like lending money to property development and then hold security over those assets.
In order to reduce volatility, he says TIME never lends more than 65 per cent of the value of the entire property, which helps to insulate capital should prices take a tumble.
Housden says as many investors in this strategy are interested in preserving their wealth, the aim of the vehicle is capital preservation with low volatility.
“There’s not huge growth potential,” he said. “We’re targeting 3.5 per cent growth per annum.”
While the fund is never going to shoot the lights out, it does have an 18 year track record of achieving 100 per cent relief from inheritance tax while beating inflation.
It has a minimum investment of £25,000 and has an annual management charge of 0.75 per cent, as long as the solution reaches its target return.
Housden says investors in the solution also have the option of taking an income, which will not have an effect on the inheritance tax liabilities of the pot that remains invested at the time of death, though the amount that is paid out as income will then fall back into the taxable estate.
TIME also keeps cash on hand for the moment when beneficiaries want to unwind capital from TIME:Advance.
Housden says there is plenty of liquidity in the system through a diversified loan book, so TIME can provide beneficiaries, or investors who change their mind in their lifetime, with the value of their investment within a month at any time.
While this strategy can offer investors tax relief in a relatively short amount of time, Housden encourages investors not to avoid the topic.
“[Another mistake] people often make is not discussing their plans with their beneficiaries. It’s human nature to be private with money but it’s important to discuss your wishes with your children before it’s too late.”