Inheritance Tax Exempt Savings

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Introduction

The first thing to say is that any investment product sold mainly for its tax efficiency should come with a health warning. Tax efficient products have a history of being lousy investments. This is for two reasons:

(a) Too many of the purveyors of tax efficient products have next to no knowledge of the product’s underlying investments.
(b) Unjustifiably high charges.

The Hamilton Financial Smaller Companies Team

Hamilton Financial employs the “smaller companies” investment expertise of Martin Haslam. Martin is a Chartered Accountant and qualified investment expert with a lifetime’s experience of selecting smaller companies and an unshakable faith in their virtue. Andrew Hamilton is a Chartered Accountant and Chartered Tax Advisor and Victoria Mann is a qualified financial planner responsible for our administration and compliance. (Click here to see the full team).

Smaller Companies

Arguably, a well diversified portfolio of smaller companies quoted on the Alternative Investment Market (AIM) is likely to grow in value rather faster than a portfolio of funds investing in more established companies. Hamilton Financial, working with an expert in the smaller UK company investment market, can help you assemble a portfolio of such stocks. To quote our expert, “whilst I accept that investing in the Alternative Investment Market is considered more risky than investing in companies listed on the main market, there are some very well run small companies which have consistently performed well and have stronger balance sheets than many listed companies.” Nevertheless, we only recommend smaller companies to individuals who are comfortable with this higher risk. There are Inheritance Tax (IHT) advantages of investing directly in smaller companies and, with Martin Haslam’s help, we can assemble a suitable investment portfolio which, in accordance with current legislation, will qualify for IHT relief after 2 years.

Charges for managing IHT exempt portfolios

  • We reserve the right to charge an initial fee for setting up an IHT exempt portfolio; such fee is related to the time we spend in selecting the investments and setting up the IHT exempt umbrella. (This fee is normally about ½% of the value of the initial investment portfolio).
  • Hamilton Financial’s annual charges can be found by clicking here.

The Hamilton Financial Process

Hamilton Financial use the broking services of James Sharp, a stock broker specialising in smaller companies based in Bury, Lancashire. James Sharp has a nominee company who hold the appropriate share certificates for the benefit of clients. Purchases and sales of investments for clients are made in the name of James Sharp nominees; dividends are collected by James Sharp and paid out to clients every quarter. After two years, the portfolio will qualify for 100% relief from IHT; so, for example, whilst an investment portfolio comprising FTSE 100 companies worth £1 million would result in IHT payable on death of £400,000, a qualifying AIM portfolio will suffer no IHT at all.

Performance

Press here to see show how a client of Hamilton Financial has benefited from investing in smaller companies over the last few years. All the stocks have been held for at least two years. Not only have the investments increased by 40%, but on death, IHT will have been saved of £339,573 (£848,934 x 40%).

Caveats

Hamilton Financial advises clients against investing in AIM listed companies simply to secure IHT relief. (Tax relief should always be a secondary reason for choosing AIM stocks, the primary reason being that it is a sensible investment strategy with which the client feels comfortable.) AIM stocks should ideally form only part of a client’s investment portfolio. Whilst a portfolio of properly assessed and selected smaller companies will usually grow faster than a conventional portfolio, smaller companies are nevertheless generally considered to be higher risk and are sometimes difficult to trade because of lack of liquidity (i.e. fewer shares mean wider bid/offer spreads.)

Conclusion

With the mix of tax and smaller company expertise, Hamilton Financial are unusually well qualified to assist clients who want to invest some of their savings in an IHT exempt savings portfolio.