Call to consult with family businesses
Neil Davy of Family Business UK (FBUK) has today written a letter co-signed by 32 trade associations, representing 16,000 family businesses, to Rachel Reeves regarding the changes to Business Property Relief (BPR) announced in the recent budget . The letter calls for a consultation period before any change to actual policy happens, warning that the upcoming changes will starve family businesses of investment and lead to unnecessary business sales.
FBUK says ‘BPR and APR are not loopholes. They exist for a purpose. Introduced by Labour in 1976, they allow profitable businesses to continue trading, without penalty, when the owner dies. Where a business is able to do so, a dividend covering the cost of the IHT bill can be paid. But this comes with an additional tax cost of 39.5% – effectively double taxing family-owned businesses.’
Business Property Relief (BPR) is a long-established provisions in UK tax law designed to support family businesses, these reliefs allow qualifying assets to pass from one generation to the next without incurring a substantial Inheritance Tax (IHT) liability. However, they are not automatic and are subject to strict eligibility criteria set by HMRC.
-
- BPR applies to qualifying business assets held for at least two years before transfer or death
- Relief is available for trading businesses and certain shares in unlisted companies.
- Depending on the nature of the business assets, relief may be granted at 50% or 100% of their value
What were the changes?
The changes, announced in the Autumn budget, will mean that businesses worth more than £1 million will now be subjected to IHT at 20% when the owner dies. BPR currently means when you leave a business to your heirs, or transfer it to them during your lifetime, there is no IHT to pay. In 16 months time this will only apply to businesses worth less than £1 million.
Do business owners have to sell?
The worst-case scenario for business owners is they have to sell to pay the inheritance tax bill, however with sensible and timely planning there are alternatives. Simple changes to your Will can make a big difference, including transferring ownership to your children while you’re still alive, lifetime gifting and some trust planning can all help to alleviate the pressure of a huge IHT bill. It’s unlikely businesses can mitigate the entire bill, but they can plan for the future to try and protect their assets from being carved up or sold entirely.
Potential effect on the economy
The CBI suggests in a recent report that the knock-on drop in investment will overshadow any additional revenue created by Inheritance Tax payments. The findings indicate the Treasury has under estimated the impact of these reforms.
Recent Comments