There are growing concerns that potential changes to Inheritance Tax (IHT) Business Relief could be announced in the upcoming Budget, with rumours that the relief could now be capped at anywhere between £500,000 and £1m per person.
Business Relief reduces the value of a business for IHT purposes. The relief was first introduced in the 1970s to protect the legacy of privately owned businesses, allowing them to continue operating following the death of an owner.
Business Relief is available on the transfer of business assets during a person’s lifetime or upon death. In most circumstances, to qualify, relevant business assets must be owned for two years before the transfer.
Business Relief is also available to those who invest in qualifying businesses through share ownership. It’s an attractive form of IHT planning as it reduces the value of assets, subject to 40% IHT, in an individual’s estate if held for two years as opposed to the seven-year rule which applies to gifts. You can continue to access investments and dividends while benefiting from an IHT-friendly environment.
Current Business Relief rules
You may qualify for 100% Business Relief on:
- Shares you own in a qualifying trading business, such as your unquoted family company.
- Shares you own in other trading companies, which might be investments. This includes companies listed on the Alternative Investment Market.
- EIS and SEIS shares.
You may receive 50% Business Relief on:
- Shares you own in a quoted company if you have more than 50% of the voting rights.
- Your land, buildings or machinery if they are used wholly or mainly for the business.
Business Relief exemptions
- Business Relief will not apply if your shares are in a business that deals in securities, stocks and shares, land or buildings, or making or holding investments, including shares, are not exempt from Business Relief.
- This particularly impacts you if you are a landlord with a rental property or have shares in a property rental company.
Potential Changes to Business Relief in the Autumn Budget
A recent report published by the Institute for Fiscal Studies (IFS) looked at how the Government could raise revenue by closing IHT loopholes and suggested that the availability of Business Reliefs and Agricultural Relief (which is similar to Business Relief) could be greatly reduced or even abolished in the coming Budget. Other suggestions include capping Business Relief at the value of £500,000 per person.
It’s worth noting that we would expect that if there were to be changes to Business Relief there would be a consultation period before anything was announced and implemented.
Another area the Government may look to tighten is the criteria for assets ‘qualifying’ for Business Relief purposes, expanding the activities excluded from relief, or limiting the range of assets within the business that qualify.
This may result in new issues when separating trading activities and what could be considered ‘investment assets’ into different entities to protect entitlement to the relief.
Any changes to Business Relief, such as significantly reducing or abolishing it could have a detrimental impact on business owners, potentially affecting the continuity and growth of businesses. Understandably, such changes could cause uncertainty and worry.
To help you prepare for, and manage the impact of any changes that do occur, we are here to support you and explore ways to protect your business legacy.
Connect with us
It’s important to stay informed and prepare for any changes. If you have any concerns or would like to discuss strategies to navigate these potential changes, please do not hesitate to contact us. Your peace of mind and the future of your business are important to us.
