The respected Tax Adviser Danby Bloch has recently stated that diversification is not just an important strategy for investment – it also makes sense when it comes to tax planning.
And with the current low level of new business flowing into life assurance bonds, maybe this a way of mitigating Inheritance Tax which has been forgotten about. Only about 3 per cent of assets on adviser platforms is held in the form of UK or offshore bonds, according to recent Platforum research.
Unsurprisingly, the main focus of inheritance tax planning is on pensions and business property relief (BPR) investment. And there are good reasons for their popularity, seeing as they provide the irresistible and currently politically-fashionable attraction of both having your cake and eating it.
You can hold on to the asset in your estate and access it for spending if the need arises but it is free of IHT at the same time.
There is, of course, a requisite two-year wait for a BPR investment to qualify for IHT freedom, although that does not normally present a serious problem for most clients.
What could be better than that? Not much.
Even if the original investor takes a relatively short-term view, their beneficiaries may well be able to weather investment storms and sail through to better times and returns.
Pensions are currently IHT-free on death, although the age at death means there is something of a tax lottery. Still, the underlying investments should be more mainstream and less volatile, especially with a foundation of fixed interest.
What is not to like, however, is that neither of these tax privileges are guaranteed to survive a Labour government or even the current chancellor, who has set the Office of Tax Simplification to review IHT. The OTS has asked interested parties for their views on a whole range of issues, including BPR, pensions and life assurance.
Bloch is of the view that the current structure of BPR is very generous by international standards. And while there are some solid reasons it might possibly survive in its current form, things can change quickly.
Family businesses are arguably the backbone of UK enterprise, so encouraging them to take an intergenerational long-term view makes a lot of sense for the government. But some would argue these reliefs can also stultify enterprise and reinforce social immobility and privilege. The tax breaks have survived several decades of different governments but they might not continue to be so generous in the future.