Company Shareholders – You need to be Aware of Budget Reduction to Inheritance Tax Business Property Relief.
The new Labour Government’s first Budget on 30 October announced significant changes to long established Inheritance Tax Reliefs for certain Agricultural Assets and/or Business Assets.
For as long as I can remember, the IHT rules have always included the potential for up to 100% relief from IHT on the value of agricultural and business assets. However, as you will no doubt already have read/heard, significant changes were announced, which from April 2026 will restrict the IHT relief to a combined total value of qualifying assets of £1million. Above that limit there could effectively be an IHT liability at 20% on those assets.
Immediately following the Budget there were many articles in the press that focused on the impact the changes will have on the agricultural industry, and for many ‘family farms’ the resulting potential IHT liability could have serious implications for the future of the farm.
All that is true, and all farmers and landowners will need to review their IHT positions and the potential impact of the changes without delay.
What is however surprising is that there appears to be less awareness that the proposed changes will have just as significant impact on company shareholders in many owner-managed businesses, multi-generational family companies and other similar trading companies – some of which may have significant established values, and therefore now have the risk of triggering significant IHT liabilities.
It is or course early days, and I am sure much will be in the news and professional press in the coming weeks, which we will be monitoring. Tax planning ideas will start to emerge, and perhaps criticism of the changes might even reach a level where the Government have to backtrack a little.
Either way, initial reaction is that the focus may start to centre around passing on sufficient assets to children/grandchildren during lifetime in order to reduce the value of assets held by the parents/grandparents, to a level where their estate falls within or at least closer to the IHT limits, and trying to ensure that in the case of married couples, both spouses can benefit from their own £1million limit of Agricultural Property Relief/Business Property Relief.
This will mean:
Carrying out an initial IHT review to ascertain the potential scale and exposure to IHT under the new rules, including the implications for unspent pension pots on death.
Family/business succession plans need to be reviewed.
Reviewing Wills, particularly where for spouses they are written on a ‘second death’ basis, because if the £1million limit is not fully utilised on the first death, the unused amount cannot be transferred to the surviving spouse.
We already know that many people are concerned about the implications that the changes will have, and therefore if you would like to arrange a meeting/discussion regarding the proposed changes, please don’t hesitate to contact:
George Hardey
Director and Head of Tax
george.hardey@waltonsba.co.uk
Paul Buckley
Associate and Senior Tax Manager
paul.buckley@waltonsba.co.uk
Ben Bramwell
Assistant Tax Manager
ben.bramwell@waltonsba.co.uk
This blog article was written by George Hardey, Director and Head of Tax at Waltons, 4 November 2024.
