Inheritance Tax Planning with Enterprise Investment Schemes
Not keen on the government gate-crashing your funeral to demand yet more tax? An Enterprise Investment Scheme may be a useful addition to your estate planning toolkit.
It’s not at all surprising that we, as a nation, are pretty much united, across the political spectrum, in our opposition to Inheritance Tax, because: -
- It’s cruel: The tax must be paid within six months of a bereavement, just when families are at their most vulnerable after losing someone they love.
- It’s double taxation: for every pound we pay into our mortgages or put into our savings, we’ve already paid a third as much again in tax and national insurance. Having already taken a big slice of the pie, should the government really be gate-crashing our funerals to demand even more?
- It punishes us for doing the right thing: Should working hard and saving to better ourselves and provide a secure future for our families be penalised?
Fortunately, families caught in the cross-hairs of this intrusive and unfair form of taxation can do a great deal to limit their exposure. With the right financial and legal advice and careful planning, Inheritance Tax can be reduced or eliminated.
Among the range of strategies available is the option of investing in an Enterprise Investment Scheme. If you work with a financial advisor, you may have heard about them, but may not be altogether clear about how they work and how they can benefit you. This is a summary to help you consider whether to explore this option further.
What is an Enterprise Investment Scheme?
Enterprise Investment Schemes are a win-win for families and businesses alike. They have been around for over twenty years and were introduced to encourage us to invest in up-and-coming businesses. Investing in small, unquoted companies is risky, so Enterprise Investment Schemes provide us with incentives to take the plunge, with protection in case things go wrong.
Enterprise Investment Schemes are vehicles for investing in small, unquoted companies, with relief from Income Tax and Capital Gains Tax, and - crucially from an estate planning perspective - protection from Inheritance Tax liability.
Relief from Inheritance Tax
If you invest in an Enterprise Investment Scheme, you own shares in small companies that are not quoted on the Stock Exchange. Shares in these companies qualify for Business Property Relief from Inheritance Tax, once you have held the investment for a qualifying period of two years.
Business Property Relief is a complete shield from Inheritance Tax, so any funds you invest in an Enterprise Investment Scheme will be exempt from Inheritance Tax.
And the good news doesn't end there.
Income Tax Relief
You get Income Tax relief of 30% when you invest in an Enterprise Investment Scheme. For every £1000 you invest, you get £300 knocked off that year’s income tax bill. You can wipe out your entire income tax bill for the year if your investment is big enough, and if the investment is larger still, you can carry surplus relief back a year, to get a discount against the previous year’s income tax bill.
For example, if you invest £20,000 in an Enterprise Investment Scheme, you can have up to £6000 wiped off this year’s tax bill. But if, say, this year’s tax bill is only £5000, you can carry the surplus £1000 back one year and have it knocked off your previous year’s income tax bill.
You must make a formal claim to get the tax relief, and it comes to you either as a tax rebate or as an adjustment in your tax code.
There is a caveat, though. You must hold on to the investment for at least three years. If you get rid of the investment in under three years, you must repay that tax saving to HMRC.
Capital Gains Tax Deferral Relief
Lots of Buy-To-Let investors are thinking about selling up and putting their money elsewhere, because of the recent tax changes that have made buy-to-let investing less attractive. But the downside is that selling a buy-to-let property can trigger a liability for Capital Gains Tax
But if you sell a house and trigger a Capital Gains Tax liability, you can defer paying Capital Gains Tax by rolling the sale proceeds over into an Enterprise Investment Scheme. Sometimes you can even make the delay permanent.
You can get Capital Gains Tax Deferral Relief if you subscribe to an Enterprise Investment Scheme, either a year or less before, or three years or less after, you sell the property.
If you want to roll a gain over into an Enterprise Investment Scheme, you must make a formal claim for Deferral Relief. You can defer as much of the Capital Gains Tax liability as you like, limited to the amount of money you put into the Enterprise Investment Scheme.
You can defer paying the Capital Gains Tax until you take your money out of the Enterprise Investment Scheme. Once you take your money out, you must pay the Capital Gains Tax at the rate that applies to that year. But if you keep your money in the scheme for the rest of your life, your heirs can inherit the funds in the Scheme without paying Capital Gains Tax.
Deferral Relief doesn't just apply to buy-to-lets; it applies to other assets sold at a profit, such as publicly quoted shares.
Capital Gains Tax Freedom
Normally, if you own shares and sell them on at a profit, you must pay Capital Gains Tax on the increase in their value. But any increase in the value of shares held in an Enterprise Investment Scheme is exempt from Capital Gains Tax. However, to qualify for this exemption, you must hold the investment in the Enterprise Investment Scheme for a minimum of three years.
What if my Enterprise Investment Scheme shrinks in value?
If your investment is worth less when you take your money out than it was worth when you went into the Scheme, you can offset the loss against either capital gains or income, thereby reducing or eliminating your Income Tax or Capital Gains Tax liability. You can offset your losses against the current and previous year’s gains and income.
Worth exploring further?
Enterprise Investment Schemes aren’t for everyone. Despite the Inheritance Tax protection and the other tax incentives, there’s no getting away from the fact that investing in small, unquoted companies is inherently risky. So, if you’re a cautious investor, or you depend on deriving a predictable income from your investments, an Enterprise Investment Scheme may not be right for you.
Until recently, many Enterprise Investment Schemes specialised in funding renewable energy companies, which were regarded as a very safe investment. However, the government recently banned renewable energy companies from being funded by Enterprise Investment Schemes. As renewable energy companies made up around a third of all companies funded in this way, their removal has made it harder for Enterprise Investment Schemes to limit risk.
So, before you decide to take the plunge, it’s important to do your due diligence and obtain quality advice from an expert financial advisor.
For help with planning a secure future for yourself and your family, fill in the contact form below or give us a call on 0151 601 5399.
Coronavirus - a message from the heart
The impact of the Coronavirus crisis is really beginning to bite. This is my pledge to help if you're worried and feel the need to quickly have your affairs in order.Read more...
Video Blog - How to Protect your House from Care Fees
This is the biggest issue for more mature parents whose kids have flown the nest - how can we save the kids' inheritance from being wiped out by care fees?Read more...
Video Blog: How to Pay for a Funeral Without Going Into Debt
It's a terrible time when you've just been bereaved, and the last thing you need is practical worries about paying for the funeral.Read more...
A Scary Story! Video Blog
My video explaining how a simple keystroke error almost cost someone their £100k+ inheritance … and what easy action you can take to safeguard yourself against such a thing happening to you.Read more...
Older Childless People “Dangerously Unsupported”
More than a million childless people aged 65 or above are living with dangerously inadequate levels of support, suffering isolation and lack of access to formal care - and that number is expected to double by 2030.Read more...
Taking the Long View
You need to make an estate plan to truly future-proof your family. Here's why, and how to go about it.Read more...
Brexit Turmoil Delivers Reprieve for Bereaved Families
At last, a tiny bright spot amongst the relentless Brexit related misery.Read more...
£110,000 for seven years of care
A court has awarded £110,000 to a granddaughter who provided devoted live-in care for her grandmother for seven years.Read more...
What to Do When a Loved One Passes Away
When you lose someone, the last thing you want is to think about the practicalities, but there are some essential steps you must take to safeguard the estate and ensure that it is passed down as smoothly as possible.Read more...
Estate Planning Essentials for Same-Sex Couples
How to avoid the four most common estate planning pitfalls that can affect same-sex couples.Read more...
D’Oh! Five Ways to Seriously Mess Up Your Estate Plan
If financial security and peace of mind for your nearest and dearest is your priority, it’s essential that you maintain a valid and up to date estate plan.Read more...
Talking About Estate Planning with your Parents
Have your Mum & Dad made their estate plan yet? Should you be concerned?Read more...
What About Your Digital legacy?
How to plan for what will happen to all your online accounts after you’ve gone.Read more...
Don’t let your business get clobbered!
It’s your responsibility to safeguard your business. Here’s how to do it in three easy steps.Read more...
Cost of Care Rises by 10% in Just One Year
The cost of a place in a care home is rising at its fastest rate ever, while pension incomes have little hope of keeping pace.Read more...
Hats off to the “Parentsioners”!
Look around, and you’ll notice you're surrounded by people who quietly go about their daily business of achieving seemingly impossible feats of hard work and organisation. You might be looking at just such a person in the mirror.Read more...
Contested Will Saga Ends in Prison Sentence
A retired window cleaner, who was left £280,000 in the will of a customer, was jailed for failing to hand back the money when ordered.Read more...
Will Inheritance Tax be Simplified?
The Office for Tax Simplification is reviewing the complex Inheritance Tax system. Does this mean there will there be less tax to pay?Read more...
Daughters try to block father’s marriage
Court of Protection forced to decide whether daughters can lawfully block their father’s marriage to his partner of 20 years.Read more...
Three Brothers in Court Battle Over their Mother’s Legacy
The three Heath brothers have already incurred £50,000 in court costs because they didn't have the awkward family conversation about inheritance.Read more...
We Need to Talk About Inheritance
With inherited wealth set to double in the next 20 years, it’s time to get over the awkwardness and have the conversation now.Read more...
Inheritance Tax Bonanza for HMRC
A 23% spike in Inheritance Tax receipts is being blamed on frozen allowances, rising house prices and more aggressive tax collection.Read more...
Dementia Tax – Some Good News?
Cautious optimism as Health Secretary vows to bring forward plans to make paying for care fairer.Read more...
The Tragic Case of “Mr Y”
52-year-old "Mr Y" is being kept alive in a coma while the Official Solicitor defends legal principles.Read more...
Can the Government be Trusted on the Dementia Tax?
Little has been said about the cost of care since the 2017 Dementia Tax controversy. But the few hints dropped by the government have both insulted and threatened parents of adult children.Read more...
Power of Attorney Refunds Available
If you paid £110 to register your Lasting Power of Attorney between 1st April 2013 and 31st March 2017, you are entitled to a refund of up to £54.Read more...
Case Study: Jim and Jean’s Story
Jim and Jean have two grown-up children with complex disabilities. Here’s how their estate plan met their needs.Read more...
The £50million Final Salary Pension Transfer Boom
Here’s why so many savers are moving away from their final salary pension schemes? And why your pension capital should be a key consideration in your estate plan.Read more...
Just how risky are Lasting Powers of Attorney?
An invaluable tool? Or a passport to financial abuse?Read more...
Case Study: Guy and Steve Safeguard their BusinessRead more...
Sheila Kitzinger’s Good Death
Sheila Kitzinger, a passionate advocate for the rights of expectant mothers, pioneered the use of birth plans. And she brought the same control and empowerment to planning her own final days.Read more...
We’re Not Getting Any Older
Life expectancy at age 64 has all but ground to halt, due to the austerity years and a surge in dementia. What can you do for yourself while we wait for a cure?Read more...
Lynda Bellingham’s Sons Betrayed, as Feared
The late Lynda Bellingham’s lack of a proper estate plan risked leaving her sons with nothing – now her widower has done exactly what she least wanted him to do.Read more...
Probate: What’s it all about?
If you are dealing for the first time with the estate of someone who has died, you must quickly get to grips with some probably unfamiliar concepts. This is a short introduction to the issues you may have to deal with.Read more...
Redefining old age?
Seismic demographic changes mean we must re-think what it means to be “old”, says one of the UK’s leading social scientists.Read more...
Case Study: Ray & Joyce
How this retired couple made sure most of their main asset would be inherited by their children – and not the council.Read more...
Business Property Relief
If you are a business owner, it’s likely that your business is one of your main assets. You may want to pass your business to the next generation as a going concern, or you may want your dependants to benefit from the value of the business after you’ve gone.Read more...
Seven Inheritance Tax Tips for Buy to Let Investors
If you’ve invested in buy-to-let, you’ve probably done so with the intention of creating a steady income for yourself, together with capital to hand on to the next generation when you’re gone. But unfortunately, wealth tied up in residential lettings often comes with a significant Inheritance Tax burden.Read more...
The Residence Nil Rate Band
A guide to making the most of the new Inheritance Tax allowance.Read more...
Case Study: Tony and Diane’s Story
How Tony and Diane secured an Inheritance-Tax-free legacy for their daughter and planned a secure retirement for themselves.Read more...
What’s all this fuss about The Dementia Tax?
It’s odd that there has been so much vociferous debate about “the dementia tax”, as if this is an outrageous new concept proposed by a rapacious government. The truth is that people with dementia have been robbed of their legacy for decades to pay for their care.Read more...
Separating Elderly Couples in Care is Inhumane
It's scary that Social Care leaders actually had to be told at a recent conference that separating elderly couples in care is inhumane.Read more...
Inheritance Tax Planning with Enterprise Investment Schemes
Not keen on the government gate-crashing your funeral to demand yet more tax? An Enterprise Investment Scheme may be a useful addition to your estate planning toolkit.Read more...
Sons’ Inheritance Blown on Legal Fees
Two brothers have wasted their entire inheritance on a doomed court battle to contest their late father’s will.Read more...
Helping your Parents to Cope
The Guardian newspaper recently published a helpful group discussion, in which readers shared their own experiences of what has worked for them in offering a helping hand when a parent is finding it all too much.Read more...
The Supreme Court’s Decision in Heather Ilott’s case.
The 2015 Court of Appeal Decision in Heather Ilott’s case has been overturned. The Court of Appeal’s 2015 award of £163,000 has been reduced to £50,000.Read more...
Charitable Legacies - a Win-Win
Leaving a charitable legacy in your Will makes you feel good AND gets you an Inheritance Tax discount – what’s not to love?Read more...
Our friend died without saying she’d left us £110k
The rate at which estates go unclaimed has risen two and a half times in the last five years, according to government figures recently released.Read more...
Who gets the kids if something happens to us?
It’s a horrible thought, isn’t it? Nobody wants to imagine their beloved child being orphaned, but thinking about the unthinkable, and making proper plans, is a vital parental responsibility.Read more...
Is Your Child’s Inheritance Divorce-Proof?
Doreen Crowther may lose her house because her inheritance wasn't divorce-proofed.Read more...
Planning for the Cost of Care
Will poor health in later life put your home at risk?Read more...
Status Quo Rocker Rick Parfitt Disinherited his Wife
The late Status Quo star Rick Parfitt disinherited his wife in the final days before he died, it has emerged. But all is not as it seems.Read more...
My Health Scare - and why I’m so glad I made an Estate Plan
My New Year was overshadowed by a major health scare – but my estate plan assured me that, whatever might happen, my clients and loved ones are protectedRead more...
Your New Year’s Resolution?
If you haven't made your will yet, you risk leaving a mess behind for the people you love.Read more...
George Michael’s Estate Plan
Much missed pop legend provides for his sisters, god-children and favourite charities in his WillRead more...
Our 2017 Continuing Professional Development Programme
Our 2017 Estate Planning Training Programme for Accountants and Financial Services ProfessionalsRead more...
How a £2000 Inheritance Transformed 40,000 lives
Vashti Seth started a charity with a legacy from her dadRead more...
The £72million House Heist
Councils’ £72million raid on older people’s houses to pay for careRead more...
Royle Family’s Caroline Aherne Accidentally Left Her Mum with a £71,000 Inheritance Tax Bill
Inheritance Tax stress for Caroline Aherne's bereaved MumRead more...
“Get a Job!”: Disinherited Daughter’s Court Battle Ends in Humiliation
Danielle Ames loses her fight with her stepmother for a share in her late father’s fortuneRead more...
Danae Brook’s Story: A Blended Family Blighted by Intestacy
How Danae’s husband’s intestacy left this blended family in chaos.Read more...
The Truth about Deliberate Deprivation of Capital
Thinking about making a significant gift to your children? Worried that the council might snatch back the gift if you later go into a care home? Here’s what you need to know.Read more...
Disinherited Daughter v Stepmother
Disinherited Danielle Ames in Court Battle with her Stepmother over her "Idolised" Late Father's FortuneRead more...
Is the Traditional Marriage an Endangered Species?
In a major cultural shift, married couples are now in the minority as most couples choose to cohabit. Is this the beginning of the end for traditional marriage?Read more...
Video Blog - Inheritance Tax and You
Will my estate be affected by Inheritance Tax?Read more...
The Hurt and Rejection of Daisy Goodwin
It's every parent's responsibility to talk to their children about the legacy they might leaveRead more...
Trusts to Manage Inheritance Tax – One Rule for The Duke of Westminster and One for the Rest of Us?
The toxic urban myth that Inheritance Tax is for "the little people".Read more...
Toby Wales’s Story
The power of wills to transform lives for the better.Read more...
Heartache and Chaos from a Lost Will
Alison Shields tells of the distressing consequences of her father's lost will.Read more...
Father’s fear of making a will left his young daughter penniless
How Katy Young was accidentally disinherited by her father's fear of making a will.Read more...
Property tycoon sued beyond the grave.
Ex-civil partner of deceased millionairess in court bid for larger settlementRead more...
Stepfamilies & Blended Families Estate and Legacy Planning
A video guide for people who have stepfamilies or blended familiesRead more...
Frugal Bachelor Leaves Surprise Legacy of £1.5million to his Local Hospital
Heartwarming Generosity of Peter GibbonsRead more...
Case Study - How Dervla’s Inheritance Tax Planning Saved £120k
In today’s climate, “fail to plan” means “plan to pay lots of Inheritance Tax”Read more...
Video Blog - Estate Planning Tips for Business Owners
A Video Guide to Keeping your Business ResilientRead more...
Angela Rippon – a Happy Singleton Putting her Affairs in Order
In advance of the BBC documentary "The Truth About Dementia", Angela Rippon shares her concerns.Read more...
“Do Not Resuscitate” – Could this Happen to You Without your Consent?
The NHS knows that it's happening - and why it's happening - but won't be doing anything about it anytime soon. Here's how to protect yourself and your family.Read more...
The 8 Vital Questions You Should Answer Before You Make a Will or Estate Plan
How to choose an estate plan that's fit for purpose and within your budgetRead more...
Estate Planning Tips for Happy Singletons
This is an estate planning guide for single people - what you, as a happy singleton, can do to plan a secure future and a meaningful legacy.Read more...
Oxo Mum’s Family Torn Asunder by a Badly Made Will
How poor estate planning has left the late Loose Women star’s sons powerless – and possibly penniless.Read more...
Case Study - Bill and Anne, Buy to Let Investors
How we helped a couple ensure a secure future for theselves, their family and their buy to let portfolioRead more...
Estate Planning Considerations for Buy to Let Investors
This is the first in a two-part series that looks at the estate planning concerns of buy to let investors - and some of the many available solutions.Read more...
Come Live with Me and Be my Love ....
Five practical tips for living together securelyRead more...
Colin and Eleanor’s Story - Peace of Mind for Four Generations
This is the story of Colin and Eleanor, great-grandparents who wanted the peace of mind of knowing their assets were protected for the four generations of their family, and that their own personal wishes were respected no matter whatRead more...
Soaring Probate Fees - a Stealth Tax
The Ministry of Justice has announced a fee scale that increases the cost of probate by up to 130 times the present fee. Here are some ways of managing the cost of leaving a legacy for your family, so their inheritance is maximised.Read more...
Joy Williams’ Legal Battle - And Her Lessons for Couples Living Together
Joy Williams has won an exhausting, four-year court battle to save her home – but it could all have been avoidedRead more...
How a £90 Will Cost a Daughter Half a House
Ebenezer Aregbesola used a low-cost will-writing service to prepare his will - consequently a crucial loophole was missed, which robbed his daughter of her inheritance.Read more...
Making Your Child’s Inheritance Divorce-Proof
Marriage isn't always forever - is there a way to protect your child's inheritance from the consequences of a divorce?Read more...
How A Blunder Over Geography Led to a High Court Battle Over a Scientist’s Will.
A High Court battle between The Royal Society and an eminent scientist's family centred on the meaning of the phrase "United Kingdom".Read more...
Twice the Maternal love, but Twice the Inheritance Tax Burden
The Utley family have shared in the national press their heart-warming story of sisterly devotion, and their worries about the way a wholly unexpected turn of events has placed them in a dilemma they’re unsure how to solve. Here are some potential solutions.Read more...
Guest Blog - Building a Secure Future with ISA’s
This guest blog is brought to you by Neil Ridpath, an Independent Financial Advisor with Neil J Ridpath Wealth Management Limited. A fundamental part of planning for yours and your family’s financial security is making the most of your assets. Here, Neil tells us about Individual Savings Accounts, and why they are such a useful tool for getting the best return form your hard-earned savings.Read more...
Standing Up for the “Mustn’t Grumble” Generation.
Recent reports suggest that older people are getting a raw deal in many aspects of life, because they generally don't like to complain. How can we make sure older people receive the great service they deserve?Read more...
Seize the Day! Overcoming Procrastination about Protecting your Legacy
How to overcome the impulse to put off important decision, like protecting your legacy.Read more...
Self employed? Here’s how to safeguard your business and your family
If you're self-employed, your business can be your greatest asset and your greatest responsibility - here's how to keep it safe. come what mayRead more...
“Inheritance Tax is too toxic to save”, says The Fabian Society
The Nation is almost unanimously opposed to Inheritance Tax - but abolition is unlikely so we must fight back in other ways.Read more...
Advance Care Planning - Staring Into the Abyss or Taking Back Control?
Considering an Advance Directive takes some courage - but brings peace of mind for you and your family.Read more...
Don’t Mind the Council Inheriting your House? Then Go Ahead and Make Basic Mirror Wills
The potential price of making simple mirror wills.Read more...
Why leaving your estate to your other half can be a terrible mistake
The risks in making straightforward Mirror Wills.Read more...
Subscribe for Updates & Information
"As a single person with no dependants I wanted to ensure that in the event of my death my assets would be given to the people that I wanted - Gina sorted it simply and in plain english - that’s a real comfort. Thanks!!"