Some advisers are under the false impression that putting additional funds into inheritance tax (IHT) shelter products close to death will qualify the assets for IHT exemption, according to one expert.
Puma Investments, a company that offers venture capital trusts (VCTs) and IHT products, said there is a misunderstanding among some on the rules of using such products.
CEO David Kaye told Money Management that a number of advisers believe that, if an IHT product has been bought more than two years ago – therefore qualifying for IHT relief – additional top-ups into the product less than two years before death would also qualify for the relief.
According to HMRC, “The general rule is that property is not relevant business property (and so does not qualify for relief) unless it was owned as such by the transferor throughout the two years immediately before the transfer.”
Anecdotal evidence suggests some other providers are saying additional top-ups would qualify for relief even if shares had not been held for two years at death, Mr Kaye said, which is not the case.
“I keep getting asked the same question by advisers,” he said. “Advisers say ‘we were told differently’. I see it as quite clear. There is a two-year block and you can only be sure about the money you have put in before that two years.”
Puma, a division of the Shore Capital Group, launched its IHT strategy Puma Heritage earlier this year. There have been predictions that IHT products would rise in popularity as more people become affected by the issue due to the freeze in the threshold at £325,000.
Mr Kaye said any attempt to get around the rules would likely be spotted when going through probate, when it would be necessary to detail how long the business interest had been held.
But, he added, the majority of individuals needing to use an IHT product would probably not wish to top-up anyway.
“This is one of those investments that you do and put it in a cupboard,” he said. “More likely than not, you probably won’t top up.”
See full article here on the FT Adviser website