Business Property Relief and Agricultural Property Relief are both ways of passing on assets without needing to pay Inheritance Tax.
The reliefs can currently achieve up to a 100% tax saving, meaning assets that fall into these categories – such as family businesses, AIM shares, agricultural land and farm buildings – can be passed on to children or family members tax-free. Reliefs are often partially or wholly compromised by complacency.
While focusing on increasing taxes on income would be unpopular, cutting the reliefs on how rural and business assets are inherited are easy targets – and could be reduced.
At the moment we have the vital furloughing scheme supporting thousands of workers, with the bill being footed by the government. The scheme, supporting workers during the Covid-19 crisis, was recently extended to October and is said to be costing the government around £14bn each month. This is creating a revenue gap that needs to be plugged, most likely through raising taxes at some point.
The Government had previously looked at APR and BPR reform as it was a ‘very generous’. The Government has already reduced the lifetime allowance for pensions and the tax-free bracket keeps increasing, plus income tax is already high, so I wouldn’t be surprised to see this 100% relief under review in the coming few years (or even months).
The reliefs could be reduced to 50% for those assets currently qualifying for 100% or alternatively reducing the net that qualifies for relief. Alternatively, if the Government decides to keep those in place, we could instead see them adopt the Office for Tax Simplification’s recommendation from last year that ending Capital Gains Tax uplift on death should go ahead.
There are some effective ways to protect these assets to bank the 100% reliefs now, but delaying could cost much later down the line,
It is a good idea to review circumstances with a view to banking some of those reliefs now, as this could potentially save huge amounts in tax in the longer term. For instance, if the capital gains tax uplift on death is get scrapped, there’s all the more reason to gift to a trust or to members of a family working in the enterprise beforehand. It may well be the case that market values are also lower in an uncertain market, so it’s a good time to gift these assets because of less capital gains tax that would be paid.
In these uncertain times it’s best to prepare in any way possible and getting ahead of the curve now will pay off in the long run should agricultural and business reliefs be compromised in the aftermath of the crisis.