Evelyn's situation
Evelyn is 91, has dementia and lives in her own home with full-time support. Her long-standing friend Robert acts under a registered property and financial affairs Lasting Power of Attorney (LPA).
Before losing capacity, Evelyn regularly expressed her wish to remain at home, retain access to her capital and leave as much as reasonably possible to her two godchildren. Evelyn was never married and has no
direct descendants.
Evelyn receives approximately £74,000 a year in income, while her care and living costs are currently around £68,000. As those costs could rise significantly, Robert wants to preserve substantial accessible assets for her future needs. He is also conscious that his authority to make gifts on Evelyn’s behalf is limited and that any decision must be taken in her best interests.
Her estate is worth approximately £2 million:
The adviser's recommendation
Robert first obtains legal advice on the scope of his authority under the LPA and whether an application to the Court of Protection would be required. Evelyn’s adviser then considers her recorded wishes and previous investment experience, together with her health, likely care costs, need for accessible capital and financial capacity to bear investment losses.
The decision remains Robert’s responsibility as Evelyn’s attorney. He must act in her best interests, take account of her wishes and beliefs, and prioritise her current and future needs. A possible reduction in the tax payable by her estate cannot be the sole reason for making the investment.
Subject to confirmation that Robert has the necessary authority and that the investment would be in Evelyn’s best interests, the adviser recommends reallocating £350,000 from her existing portfolio to shares in unquoted trading companies expected to qualify for Business Relief (BR). The investment remains in Evelyn’s name, while approximately £1 million remains in conventional financial assets to meet her expected care and living costs and provide a reserve if those costs increase.
Under current rules, the underlying business assets need to have been held for at least two years prior to death or transfer, and still qualify at the relevant time, for BR to apply.
Business Relief depends on the investment meeting the qualifying conditions at death or transfer.
A note on this scenario
This hypothetical scenario is designed to help advisers think through how this type of planning might apply in practice. Whether it would suit a client will depend on their full financial circumstances, objectives, needs, capacity for loss and attitude to risk, along with the features, risks, charges and tax treatment of any investment being considered. Any recommendation would need to be made by the client’s financial adviser following a full suitability assessment.
This scenario is for illustrative purposes only and does not constitute investment, pension, tax, financial or legal advice. Actual outcomes will depend on investment performance, charges, the client’s circumstances and the tax legislation in force at the relevant time.
What it could mean in numbers
An illustration of Evelyn’s inheritance tax position, with and without the proposed £350,000 investment qualifying for Business Relief.
Putting Evelyn's best interests first
The proposed investment depends on legal authority and an assessment of Evelyn’s needs.
Legal advice should also establish whether an application to the Court of Protection is required. Any decision must be made in Evelyn’s best interests.
Illustrative assumptions
- Evelyn dies more than two years after the investment is made.
- The full £350,000 remains invested and qualifies for BR at the date of death.
- Evelyn has not used any of the £2.5 million combined allowance for property qualifying for 100% Agricultural Property Relief (APR) or Business Relief (BR).
- Her estate remains worth £2 million and her full £325,000 nil-rate band is available. The value of the £350,000 investment is assumed to remain unchanged throughout, with no growth or fall in value. In practice, the value will fluctuate, and any change would alter both the value of Evelyn’s estate and the IHT figures shown.
- Evelyn has no spouse, civil partner or direct descendants, so no transferable allowances or residence nil-rate band apply.
- Fees, charges, debts, gifts, other exemptions and reliefs are excluded. In practice, the investment would be subject to fees and charges, which would reduce the amount invested and therefore the potential IHT savings shown.
Why the adviser recommends this approach
The recommendation reflects Evelyn’s recorded wish to retain ownership of her capital, while preserving approximately £1 million in conventional financial assets for her care and other needs. Unlike a gift, the investment remains in her name and must continue to be managed solely for her benefit, with access dependent on the availability of a buyer for the shares.
On the stated assumptions, the investment could reduce Evelyn’s taxable estate by £350,000 and lower the estimated IHT liability from £670,000 to £530,000. This potential tax outcome remains secondary to Robert’s duty to act in Evelyn’s best interests, the need to retain sufficient assets for her future care and the legal limits of his authority.
Key risks and considerations
- Capital is at risk. The value of the investment may fall as well as rise, and Evelyn may receive back less than the amount invested.
- Liquidity is not guaranteed. Shares in unquoted companies can be difficult to sell, so access to capital for Evelyn’s care may be delayed and the amount realised may be lower than expected.
- Business Relief is not guaranteed. The investment must satisfy the qualifying conditions at the relevant transfer, and the tax treatment will depend on Evelyn’s individual circumstances and the legislation then in force, which may be subject to change, and such changes may Evelyn’s best interests be retrospective.
- Robert’s authority must be confirmed. He remains responsible for the decision as Evelyn’s attorney and should obtain legal advice on the scope of the LPA and whether Court of Protection approval is required.
- Evelyn’s best interests emain paramount. Her current and future needs must take priority, and the investment should be reviewed if her health, care costs or other circumstances change.
Important Notice
For professional advisers only.
This article is for information purposes only and does not constitute investment, tax, financial or legal advice. It does not constitute an offer to buy or sell an investment or solicit any such invitation.
The information is believed to be accurate at the date of publication, but no representation or warranty, stated or implied, is made or given by any person as to its accuracy or completeness and no responsibility or liability is accepted for any such information or opinion. Tax treatment depends on individual circumstances, and tax rules may change.
Issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ. Registered in England and Wales under number OC342919. Authorised and regulated by the Financial Conduct Authority under number 496358.
