DD|hub has launched its due diligence data for Inheritance Tax (IHT) planning portfolios, including services from Brooks Macdonald, Close Brothers, Investec, Octopus, Thorntons Investments and Whitman Asset Management.
IHT tax levies are at record levels with the government announcing last Tuesday that the tax collected between April and December 2022 totalled £5.3 billion – £0.7 billion higher than in the same period a year earlier.
The IHT threshold has been frozen for fourteen years, since April 2009, and (according to Chancellor’s Autumn Statement) will remain stuck at that level until at least 5 April 2028.
So it’s no surprise that IHT planning is a fruitful area for advisers – more and more clients are being sucked into the tax net. One planning strategy gaining attention is investing in shares qualifying for business relief (BR),
Such shares are higher risk investments and the rules around gaining the tax relief need to be applied diligently so careful research, analysis and monitoring is needed. Fortunately, a number of investment managers specialise in this, offering discretionary management of portfolios designed for clients looking to mitigate their IHT exposure.
Because of the complexities, advisers will want to understand how each investment manager delivers this kind of service and how it works in practice. Some of the key questions to ask a provider include:
- How experienced are they?
- What are the key risks?
- How many portfolios have been reviewed and settled by HMRC?
- How do they validate whether a particular shareholding would qualify for BR?
- How do they monitor holdings on an ongoing basis?
- How quickly might monies be invested? (To understand when the two-year minimum ownership period would start)
These, of course, are in addition to the standard due diligence questions advisers should be asking of any provider before making a recommendation, all of which can be found on DD|hub.
As consumer duty approaches, advisers must take due diligence seriously – in the FCA’s words:
‘to establish whether… it [is] appropriate to entrust the provider with client assets’.
DD|hub’s new service streamlines that process for advisers, giving them free tools to evidence their reviews.
TR16/1 said advisers can’t rely on marketing information from providers, DD|hub’s streamlined online system helps advisers, with scoring and reporting tools to evidence their compliance process. Advisers can also ‘follow’ providers to get automated updates when things change, which will help them meet their PROD and consumer duty monitoring requirements.
The FCA’s proposals for Consumer Duty look set to make due diligence even more important, with a new cross-cutting rule requiring firms to avoid causing foreseeable harm to customers. Where the FCA has identified potential risks or harms to customers via Dear CEO letters or other publications, advisers are likely to have to consider these for their clients and check what protections their preferred providers will give.
