Octopus IHT scheme latest - clients losing money for Citywire

An inheritance-tax saving is little consolation if the underlying investment loses a significant chunk of your capital. The latest performance is a reminder that Business Relief schemes are investments first and tax-planning tools second. Clients may be attracted by the potential IHT saving after the two-year qualifying period, but they generally need to remain invested in qualifying assets until death. Nobody knows whether that will be two years or twenty.
That makes performance, charges and liquidity crucial. If investors head for the exit at the same time, the illiquid nature of unquoted investments can create further problems, while moving to another Business Relief scheme isn't necessarily straightforward. The recent changes to Business Relief also mean advisers should revisit the original tax calculation. You have to balance the potential IHT saving against investment risk, charges, liquidity and the potential returns available elsewhere.

The factsheet behind this story doesn't quite say what it is being taken to say. The figure quoted is Fern Trading's share price over a full year, and the document says it should not be read as performance for the Inheritance Tax Service, whose fees and charges the figure leaves out. Whether to sell, hold or switch isn't my call, I'm not FCA authorised, but the tax half is mine. The comfort clients take from Business Relief is overstated. Relief cuts the value the tax is charged on, not the tax bill itself. Since 6 April, up to £2.5 million of a person's qualifying business and agricultural property gets full relief, so a client whose qualifying holdings come to a few hundred thousand has no tax charged on this money. A fall in the value of the holding is a straight loss to the family. Money moved from one qualifying holding to another can keep the two years it has served, if those two years fall within the five years before death. Money that comes out and stays out keeps nothing.