Proposed Changes to Inheritance Tax, Business Property Relief and Agricultural Property Relief
Rumours are circulating at the moment that the government plans to make changes to Inheritance Tax Business Property Relief ("BPR") and Agricultural Property Relief ("APR"). BPR and APR are very valuable reliefs in the context of inheritance tax (“IHT”) planning as, if you own an interest in an unquoted trading business or in a trading partnership or are a sole trader who runs a trading business or if you are a farmer, the whole value of your business can be exempt from IHT under BPR and APR, if you die or make a lifetime gift. The purpose of BPR and APR is to prevent the break-up of a family business when someone dies because there is an IHT charge on its value.
We have heard these rumours before and they may not come to anything. First, at the moment, with the worry about Brexit and the impact on trade, it would seem unfair to make the reliefs not as generous. Also, an independent review published alongside the last Budget concluded that BPR and APR were not being abused by families, although there can be a public perception that the reliefs are being used for tax avoidance purposes. Further, last week, the Chancellor asked the Office of Tax Simplification to review IHT generally.
Also, you need to be aware that it was announced in the Budget that the government plans to issue a consultative document to review Trusts this year. Generally, if you create a Trust in your lifetime, other than a Trust for a disabled person, there is an upfront IHT charge of 20% if the value of the assets you put in the Trust exceeds £325,000. This charge does not apply if the assets you place in the Trust qualify for BRP or APR and this may be why the public perceive BPR and APR being used for tax avoidance.
Given the fact that we know that both IHT Trusts are going to be reviewed this year, if you are considering undertaking a transaction to use BPR or APR, it would make sense to undertake that transaction sooner rather than later. Similarly if you have assets that qualify for BPR or APR and are thinking of passing them down to the next generation, again it would be sensible to look at placing those assets in trust at the earliest opportunity.
At Lupton Fawcett LLP, we are able to help you with drafting Trusts and giving you IHT planning advice. Amanda Simmonds, who Heads our Business Family Team and who is a Chartered Tax Adviser as well as a Solicitor, is well placed to advise you on creating trusts to crystallise BPR and APR, as well as other planning opportunities.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.