This year’s budget speech saw no mention of any changes to inheritance tax which surprised some. But in amongst the budget papers, a 32-page document reveals that proposals to raise IHT could be on the horizon. Both agricultural and business property relief could be the target of future cuts.
Currently, farm houses, farmland, buildings and other assets attract up to 100% relief from inheritance tax, provided that they are both owned and used for farming in the two years prior to the death. The idea behind the relief is to keep the estate together so that the farming business can continue. If large amounts of inheritance tax were due on agricultural property passed down from one generation to the next, agricultural assets might have to be sold to meet the bill. Farming businesses typically became unsustainable if broken up.
Business property relief works in a similar way and is available for a similar reason – 100% relief is available on a business or unlisted shares and securities, while 50% relief is available for quoted shares that give control of the business where these are owned for two years prior to the death. However, it is less likely that the beneficiary of business assets would be interested in continuing the business compared to those inheriting farm assets, because of a lack of interest or because they already have a different career.
In the budget details, the Tax Office says it expects to raise £5.3 billion in inheritance tax. Given that the new Residence Nil Rate Band is increasing the inheritance tax threshold for many, the Treasury will be collecting less tax going forward – and changes will be needed if extra revenue is to be generated.
The 32-page report is entitled ‘Research into the influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances’. It has been based on interviews conducted with both advisers and beneficiaries, to better understand how aware people are of tax breaks and how to exploit them. The findings of the report would suggest that awareness as to the reliefs available (such as agricultural and business property relief, together with other exemptions such as such as spouse the exemption and charity exemption) is low.
However the report concludes that despite this, reliefs are effective in their goal of keeping assets within the family, and allowing them to be passed to future generations in a tax-efficient way.
The report can be accessed here: https://www.gov.uk/government/publications/research-into-the-influence-of-iht-reliefs-and-exemptions
For advice on inheritance tax planning, contact our Later Life Planning department…