The Chancellor’s proposals to cap Inheritance tax (IHT) reliefs on 30 October dealt a huge blow to our generational businesses, especially farmers. The proposals still have to pass through parliament and receive royal assent before they become law but, in the meantime, local authorities, MPs, businesses representatives – to name a few – are pushing back. Could a vote force a U-turn?
What could change?
If the proposals announced in October do become law, IHT reliefs for business owners (i.e., Business Relief (BR) and Agricultural Property Relief (APR)) will be restricted to £1m of value with the excess being liable to IHT at 20% from 6 April 2026.
Sadly, some businesses will probably need to be broken up to pay the IHT, resulting in a non-viable business being left to the next generation. Farming families are hugely concerned as other business owners will be, especially where the business activity is currently run by multi-generations of one family.
What every business owner needs to think about in the New Year
We are already having more focused discussions with our clients who operate businesses about their succession plans. Key considerations include:
- The current ownership structure of the business and the founder’s succession plans
- Estimating the likely amount of IHT payable on the business’s current value, under the proposed changes – taking into account various scenarios around the current succession plan
- Involving a spouse (or civil partner) in the business to make use of their £1m threshold on death, noting that transfers between spouses/civil partners are free of all taxes during lifetime and on death
- Ensuring that the value of each spouse/civil partner’s interest in the business is at least £1m, as the £1m threshold is not transferrable upon death
- Gifting the business to the next generation without incurring any immediate tax liabilities, to start the seven-year IHT ‘potentially exempt transfer’ clock ticking, while being aware that this would mean losing the CGT free uplift to the open market value upon death
Another significant change announced in October is the freezing of the £325,000 IHT Nil Rate Band and £175,000 Residence Nil Rate band until April 2030.
Passing over a business to others is daunting. Whilst it is understood that encouraging discussions have taken place with Treasury advisers which might result in an increase to the £1m threshold, we very much doubt that any amendment / mitigation to the planned policy proposals will reinstate the current BR/APR position.
As we see 2024 draw to a close, make 2025 the year you decide to conclude your business succession plan and restructure its ownership with tax savings in mind – whatever the outcome of the proposals will be. Call CKLG on 01223 810100 if you would like to arrange a meeting with one of our specialists to discuss your plans for the future.
