Should the well-advised benefit from relief from Inheritance Tax?

 In Gill's Blog, Tax

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Gill Steel - Solicitor, Trainer in Wills Probate Trust TaxAn organisation called Tax Justice Network was reported in the Guardian on 3 June 2019 as having published a report entitled “How Inheritance Tax breaks favour the well-off”. It comments on the application and use of Business Property Relief (BPR) and Agricultural Property Relief (APR).

We live in times when tax planning is increasingly equated with tax avoidance so it is perhaps to be expected that now the utilising of statutory reliefs is called a ‘loophole’ and the use of exemptions from tax is regarded as escaping wealth taxes.

Let’s be clear BPR/APR was introduced by the Finance Act 1976 to enable family businesses and farms to pass on to the next generation without having to be sold to pay tax. This means jobs are protected and the flow of other taxes – such as income tax, corporation tax, VAT – continues.

Under Estate Duty, crippling debts were acquired to pay death taxes which meant for some a forced sale of their business at a less than advantageous time with all the attendant anxiety this causes on top of bereavement.

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Whilst there is a large disparity of wealth between the top 5 % of the population who own 40 % of the wealth of this country and the rest of us, is blaming APR/BPR and calling its use a tax loophole actually helping to address this problem?

It is without doubt true that having a 100% relief from tax is generous and it may also be true that the country can no longer afford it, but that is a different issue to calling those that use and rely on a currently legitimate tax relief, tax avoiders.

We have had 100% relief for APR/BPR since 1992. With over 10 years of austerity it is maybe time to reappraise the rates but until the government of the day introduces changes let’s not label taxpayers as something nasty. It is divisive and inaccurate.

About 30% of family owned businesses survive into the second generation according to the Family Business Institute. 12% are still viable into the third generation and only about 3% operate into the fourth generation and beyond, which begs the question as to whether tax relief is correctly targeted if it is simply providing the next generation with a tax-free lump sum on their parent’s death.

The evidence from the Tax Justice Network report suggests that 234 families with more than £1 million in business assets shared £458 million in IHT relief in 2015/16, which represented almost 80% of the total given in relief (£595 million). Similarly, 261 families owning more than £1 million in agricultural property shared £208 million in IHT relief in 2015/16, which represented 62% of the total APR relief given in that tax year.

If the time has come when economists and political parties feel the purpose for which these reliefs were created is no longer sound then suggestions are needed as to how to re-balance the reliefs to provide relief for those genuinely wanting to carry on a family business and enabling them to do so as against those who are simply looking for a tax shelter; for whom a lower or no relief may be more appropriate.

Until there are some concrete ideas to debate please stop criticising taxpayers currently using statutory reliefs as part of their tax planning.

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