The Way Group’s recent launch is being positioned as having the potential to shake up IHT planning and take people away from more traditional strategies.
The Way Duo Inheritor Plan aims to combine the features of discounted and flexible IHT schemes.
Normal discounted gift trusts work by the amount gifted being invested in a life insurance investment bond and then gifted to a discounted gift trust established at the same time that the investment is made.
This gift to the trust will constitute a potentially exempt transfer for inheritance tax purposes and offer the client the option of making regular withdrawals, although these will be determined at outset and paid at a predetermined frequency to provide an effective regular income. These payments normally cannot be subsequently altered.
The Way Group’s arrangement claims to offer more choice. Chairman and technical director Paul Wilcox says: “Our product delivers a discount on the gift into trust but, in contrast to a discounted gift plan where funds are locked in, also offers significant flexibility over 60 per cent of the amount which is gifted.
“This flexibility means the donor and family can benefit from a discount to the initial gift while still having flexible access to the majority of the gifted funds.”
Way says the Duo plan gives families ongoing financial security while not compromising the IHT mitigation.
Evolve Financial Planning chartered financial planner Jason Witcombe says: “When most people begin to think about inheritance planning, most prefer less complicated arrangements. Keeping it relatively simple is what appeals to most clients.
“Also, the more flexibility an arrangement has, the more I would expect the current legislation has been taken as far as it will go and the more likely it that the Revenue will want to take a look. If a client needs this much flexibility and access to their cash, I would probably suggest that this sort of arrangement might not be right for many clients anyway.”
The Way Group says it carried out pre-launch market research with IFAs and the response to the Duo plan has been “overwhelmingly positive”.
Another strategy is to invest in an asset which qualifies for IHT exemption. Specialist investment manager Braemar Group is setting up an agricultural land fund this month which falls into this category.
The firm feel there could be a major global cereal shortage with growing demand from India and China and farmers switching to growing cereals for biofuels rather than food.
Braemar Group sales director Mark Stubbs says: “The EU has issued a target demanding that, by 2020, 10 per cent of all vehicles should run on biofuel. With biofuel plants planned for Hull and Kent, we would expect the likes of Shell and BP to want to source cereal from as close to the plants as possible to reduce shipping costs and the carbon footprint of the fuel overall.”
The fund has just opened and Braemar will be working with land estate agency and management specialist Humberts. No land has yet been bought but once funds have been raised it will begin to acquire agricultural land which, if owned for more than two years, qualifies for business property relief and is exempt from IHT. The fund has a minimum investment of £10,000 and will operate as an unquoted plc.
Witcombe wonders whether a well managed portfolio of Aim shares might be as suitable for an investor as the agricultural land fund.
Many shares quoted on the Aim qualify for business property relief, meaning they offer 100 per cent protection against IHT once qualifying shares are held for two years.
Aim stocks do, however, tend to be more volatile and may be vulnerable to capital losses. Shares also tend to be relatively illiquid, may be difficult to trade and it could be difficult to get reliable information on value and risks.
Stubbs is confident the land fund has the edge over an Aim portfolio. He says: “This fund has a target internal rate of return of between 10 and 15 per cent annually over the next four or five years and carries a relatively low risk. It will also appeal t because land is a tangible asset that cannot go away.”
But what if fuel companies negotiate deals with foreign cereal producers and spurn domestic growers?
“We would not anticipate that but land is this country is undervalued compared with other countries in Europe,” says Stubbs.
We might expect further launches in the IHT field but many advisers are likely to stick to tried and tested planning tools.
Witcombe says, for example, that, for many clients worried about the cost of paying IHT, comp-aratively old-fashioned solutions can do the trick. “If they are worried about tying up a lump sum, then perhaps they might go for a plain old whole of life policy that pays out on death to cover the IHT bill,” he says.