Are Inheritance Tax (IHT) reliefs going to be abolished?
There has been speculation for some time that the Government might be considering options regarding the reformation of the current IHT reliefs. It has recently come to light that the Chancellor has tasked the Office of Tax Simplification with a review of IHT. Of particular note are the questions that have been asked regarding farming businesses and family owned businesses, due to the fact that there is speculation that reliefs such as Business Property Relief (BPR) and Agricultural Property Relief (APR) may be abolished.
Around the time of the Autumn Budget in 2017 the Government published a paper which reviewed the awareness of testators, beneficiaries and advisers of BPR and APR, and the use made of these reliefs in practice. This research showed that amongst people who owned or inherited assets qualifying for BPR and APR, their decisions were primarily influenced by wanting to keep estates or businesses intact, and pass them onto their family. The role of BPR and APR is generally seen as a way of allowing this to happen – very few taxpayers actually acquire assets specifically to take advantage of the reliefs.
If BPR and APR reliefs were abolished this could be disastrous for farming businesses and family owned businesses, resulting in extremely high IHT bills which could not be paid without the sale of assets, and thus the potential breaking up, of many farms and businesses. For example, for a medium sized farm of 350 acres, with land worth £10,000 per acre, the total value of the land (excluding the value of the farm house) would be £3,500,000. Currently, if the land is farmed, either directly by the owner or under a Farming Business Tenancy, upon death of the owner either BPR or APR can be claimed, thus meaning there is no IHT bill. If BPR and/or APR are abolished this would mean that an IHT bill of up to £1,400,000 could become chargeable upon death. Unfortunately, in most cases, it would be impossible to fund this level of IHT without the sale of substantial assets. In this example, this could mean the sale of 140 acres of the farmland. Such a large potential sale of the land would completely change the dynamics of the farming business, possibly making the remaining business unsustainable and could even mean the end of the business as a whole.
Watch this space for further information once the consultation and review process has been finalised.
Ann-Marie Matthews is a solicitor in the private client team at Barker Gotelee, Solicitors in Suffolk.
This article previously appeared in the East Anglian Daily Times in May 2018.