More people investing in small unlisted companies in order to pass on wealth
A growing number of people are realising that investing in small unlisted companies can be an effective way of passing on wealth and reducing their Inheritance Tax bills, says Growthdeck, a private equity investment firm.
The amount of tax relief claimed on investments in unlisted companies and other business assets passed on in estates jumped 64 per cent last year to GBP1.4 billion, up from GBP828 million the year before.
However, Growthdeck says that still not enough people are aware of how this tax relief can be used as part of Inheritance Tax (IHT) planning. This lack of awareness means many people are paying much more IHT than they need to pay.
The amount of tax relief claimed on investments in unlisted companies is a fraction of the value of estates on which IHT is charged, at GBP33.2 billion last year, up from GBP28 billion the year before.
Growthdeck explains these figures refer to ‘Business Property Relief’ which gives investors 100 per cent IHT relief on the value of unlisted shares after two years, provided the investments are still held at death.
Simon Emary, COO at Growthdeck, says: “Investing in small unlisted companies can be used to support inter-generational wealth transfers.”
“Unfortunately, it is still the case that not enough people are aware of how investing in unlisted investments can reduce their IHT bills and protect their wealth. This means too many people are paying painfully high tax bills.”
“As well as helping to minimise IHT bills, Business Property Relief also helps to unlock much needed funding for fast-growing private businesses, as well as some AIM companies. It is a tool that helps drive economic growth and job creation.”
Total amount of Business Property relief claimed last year reached GBP2.2 billion, up from GBP1.3 billion the year before. It can also be claimed on stakes in businesses, land, buildings or machinery.
Growthdeck says individuals can access unlisted investments through the Government’s flagship Enterprise Investment Scheme (EIS).
The EIS scheme gives income tax relief of up to 30 per cent on private investments into fast-growing UK businesses in order to help reduce the equity funding gap for SMEs. EIS investments would qualify for Business Property Relief if held for longer than two years.
Emary adds: “Qualifying for Business Property Relief is another advantage of using the Enterprise Investment Scheme’s bow. The scheme also offers income tax relief and the potential for significant investment returns.”