The Adviser Issue 1 | Page 37

INVESTMENTS
1 . GET TO KNOW BUSINESS PROPERTY RELIEF
“ Knowledge is everything ,” says Mark . “ For some advisers , if they ’ re not familiar with Business Property Relief there can be a fear factor . “ Once they get to understand the investments , that fear dissolves . “ Not having the knowledge is not an excuse . For the right client , BPR should be being discussed . “ I would think in most advisers ’ client banks there will be clients where tax-efficient investments like BPR are quite likely to be appropriate . “ BPR isn ’ t for every client . But advisers should be looking at it , even if it ’ s to discount it for a client . It ’ s far better to have the knowledge , look at BPR , and decide that actually for this client it ’ s not the way to go .”
2 . ADOPT A GOAL-BASED RISK APPROACH
“ There are a few areas that are consistently fed back on by the SimplyBiz file review team ,” says Mark . “ Unsurprisingly risk is up there . “ The tax benefits of BPR are compensating for some of the risk . But it ’ s not always clear in the client file that the client has an understanding of the risks . “ There ’ s a bit of an obsession around the tax benefits – which are fantastic – but our file review team would be looking to see that the adviser has addressed attitude to risk , capacity for loss , and how that impacts the recommendation within the case .” It ’ s worth recapping the risks here . The value of a BPR-qualifying investment , and any income from it , can fall as well as rise . Investors may not get back the full amount they invest . Tax treatment depends on individual circumstances and tax rules could change in the future . Tax relief depends on portfolio companies maintaining their qualifying status . The shares of unquoted companies could fall or rise in value more than shares listed on the main market of the London Stock Exchange . They may also be harder to sell . Approaching risk can be particularly challenging where a client has a relatively low appetite for risk overall , but is perhaps suitable for BPR . Yet advisers should not necessarily be deterred . “ You ’ ve got two factors here . What proportion of a client ’ s assets are being recommended to go into a BPR investment ? That ’ s a factor . Then there ’ s having a goal-based risk approach . “ A client can have different tranches of money at different ‘ speeds ’ from a risk perspective . And the file needs to clearly articulate that .
“ BPR ISN ’ T FOR EVERY CLIENT . BUT ADVISERS SHOULD BE LOOKING AT IT , EVEN IF IT ’ S TO DISCOUNT IT FOR A CLIENT . IT ’ S FAR BETTER TO HAVE THE KNOWLEDGE , LOOK AT BPR , AND DECIDE THAT ACTUALLY FOR THIS CLIENT IT ’ S NOT THE WAY TO GO .”
“ The FCA picked up on this in their first assessing suitability report in 2016 ,” says Mark . “ The FCA noticed there was a pattern in some cases where it wasn ’ t clear from the file whether the attitude to risk and the capacity for loss was for a particular tranche of money or for the client ’ s overall assets . “ If a client is a 6 / 10 for risk overall , and you have a solution that ’ s 9 / 10 , if there ’ s no narrative around that then you ’ re looking at the case and saying that doesn ’ t seem to fit .”
3 . BE THOROUGH WHEN DOCUMENTING SUITABILITY
“ It needs that extra level of documentation ,” concludes Mark . “ Make it clear that for this particular tranche of money , for these reasons , a client is going to be taking more risk than the rest of their portfolio . “ With BPR cases , you ’ ll want to have an accurate inheritance tax calculation on file too . And an ‘ after inheritance tax ’ calculation to demonstrate the impact of the advice .” P
Next steps
You can find a range of education material and an inheritance tax calculator on the Octopus Investments website .
To watch our full interview with Mark Greenwood , and to catch the rest of the Octopus Online Show on tax-efficient investments , visit octopusinvestments . com / tax-show .
BPR-qualifying investments are not suitable for everyone . Any recommendation should be based on a holistic review of your client ’ s financial situation , objectives and needs . We do not offer investment or tax advice . Issued by Octopus Investments Limited , which is authorised and regulated by the Financial Conduct Authority . Registered office : 33 Holborn , London , EC1N 2HT . Registered in England and Wales No . 03942880 . Issued : January 2021 . CAM010599 .
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