Case studies
- Investment management - modern estates and investment portfolios
- Rural estate
- Urban estate - leasehold reform
Investment management - modern estates and investment portfolios
Modern estates are no longer dominated by land-based activities, traditionally farming and forestry; in today's world, they tend to have a more broadly-based economic portfolio. They often include a number of investment portfolios, usually with different objectives in mind, but generally set up as the result of a continuing estate planning policy.
Some of these portfolios may well be in Trust and may have been created in different generations, often with the intention of keeping control over family assets whilst benefitting different branches of the family. Others will have been set up as a reaction to individual circumstances, for example to further specific dynastic objectives.
Within the investment department, we focus on understanding these objectives in order to arrange the best asset allocation for our clients' portfolios which will meet their longer-term aims. At the same time, we try to remain flexible, thereby allowing for a constant process of review and adjustment in order to take account of the changing conditions during an economic cycle. We are also accustomed to working closely with our clients' tax advisors to deliver a fully integrated financial solution to meet the requirements of a modern landed estate.
For example, we manage investment portfolios on a discretionary basis for the benefit of younger children where the money is not needed until after school or university and where we can therefore aim for longer term capital growth by selecting quality blue-chip equities on a global basis.
We also manage maintenance funds for conditionally exempt properties where the overall aim is also on longer term growth but where it is important to ensure that there is a regular flow of cash arising to meet annual running repairs and maintenance costs on the conditionally exempt property.
In both cases, the portfolios include a judicious mix of cash, bonds and equities in order to produce a performance that matches the objectives that have been agreed at the outset.
Rural estate
Rural estate Inheritance tax planning is an important part of preservation and continuation of the ownership of an estate. Often there is a diverse ownership of the estate, it being divided between family members and trustees. In order to deal with this we prepare a financial statement of the family's financial position, which we refer to as a Blue Book. It provides an important overview of the family, their trusts and business balance sheets at any particular date, as well as providing an ability to run what-if calculations on tax and asset transfers. The following examples illustrate how the Blue Book can benefit clients:-
1. Looking at security over assets for IHT purposes and restructuring
After preparing a Blue Book for our client it became obvious that he had bank loans which were structured in a way that did not give the best relief for IHT purposes. By reviewing the IHT status of other assets owned by the client and liaising with his bankers we were able to identify those assets on which bank security would produce an IHT saving at 40%. In addition it was possible, during the same restructuring exercise, to obtain immediate tax relief for interest which had previously been personal in nature. This resulted in an effective 40% reduction in the bank's lending rate.
2. Forecasting available income and planning for gifts out of income
The client's family wealth was focused almost exclusively on land and they had been looking to diversify to spread the risk. We reviewed the client's finances to identify areas which could generate surplus cash to make these investments. After a thorough review of the client's income and expenses it was identified that there was a significant surplus of annual income which could be used to fund the diversification and provide gifts to family members who would be responsible for the diversification. We undertake an annual review and have set up a payment schedule which should ensure that the gifts to family members are considered to be within the ‘normal gifts out of income' exemption for IHT. The benefit of this review is twofold, firstly IHT assets (cash) have been passed down a generation free from IHT and secondly the initial requirements of the client, to diversify the family's investments, have been met.
3. Identifying asset weightings and non income producing assets. Sales to endow a Maintenance Fund.
A review of the client's Blue Book, and consideration of the underlying assets on the Estate, allowed us to identify a number of non-income producing and non-essential assets which could be sold to endow a new Heritage Maintenance Fund. The Maintenance Fund has provided a significant income stream to maintain the conditionally exempt land, buildings and other assets of the Estate, thereby ensuring that the IHT protection is maintained.
Urban estate - leasehold reform
Leasehold reform is a major issue for urban estates. Our client had a number of residential leaseholders wishing to compulsorily purchase their freehold or extend their lease, generating significant capital gains. We advised on successful strategies for deferring these gains. The key issue was whether the repurchase of a leasehold interest constituted an acquisition of new land for the purposes of rollover relief provisions.
We devised a strategy to ensure that the gains arising could be rolled over into the repurchase of long leasehold interests, allowing the client to protect interests and defer significant capital gains.
Contact us
To speak to one of our experts about landed estates contact:
Susan Shaw
tel: 01722 434831
email: Susan Shaw
Andrew Lockwood
tel: 01722 434809
email: Andrew Lockwood
