Tax Experts Say Take Action Now To Protect Inheritance
Those looking to pass on farming or business assets need to act now to preserve full tax reliefs, which might be cut to help pay for the furloughing scheme, expert lawyers have said.
The furloughing scheme supporting workers during the coronavirus crisis was recently extended to continue into October, with employees still receiving 80% of their wages up to £2500, and is said to be costing the Government around £14bn each month.
Business Property Relief (BPR) and Agricultural Property Relief (APR) are both ways of passing on assets without needing to pay Inheritance Tax (IHT). The reliefs can currently achieve up to a 100% tax saving, meaning assets that fall into these categories - such as family businesses, AIM shares, agricultural land and farm buildings – can be passed on to children tax-free.
Specialist lawyers at law firm Irwin Mitchell say that while focusing on increasing taxes on income would be unpopular, cutting the reliefs on how rural and business assets are inherited are easy targets – and could be reduced.
Expert Opinion“At the moment we have the vital furloughing scheme supporting thousands of workers, with the bill being footed by the Government – but this is creating a gap that needs to be plugged, most likely through raising taxes.
“We’ve already had some savvy clients getting in touch looking to do any tax planning that they can because they’re anticipating the aftermath of the furlough scheme will change things when it comes to personal tax.
“The Government has previously looked at APR and BPR reform as it’s a very generous relief. They've already reduced the lifetime allowance for pensions and the tax-free bracket keeps increasing, plus income tax is already high, so I wouldn’t be surprised to see this 100% relief reduced substantially perhaps to 50% for those assets currently qualifying for 100% or alternatively reducing the net that qualifies for relief.
“If they decide to keep those in place, we could instead see the Government take up the Office for Tax Simplification’s recommendation from last year that ending Capital Gains Tax (CGT) uplift on death should go ahead.” Kelly Greig - Partner
Tax, trusts and estates experts at law firm Irwin Mitchell say there are some effective ways to protect these assets to bank the 100% reliefs now – delaying could cost thousands later down the line.
Kelly explained: “The advice is not to delay when it comes to making the most of the reliefs while they’re still available. It’s a good idea to review your circumstances and look to bank some of those reliefs now, as this could potentially save thousands of pounds in tax in the long run.
“For instance, if the CGT uplift does indeed get scrapped, there’s all the more reason to gift to a trust or to members of a family working hard in the enterprise. It may be the case that market values may be lower in an uncertain market, so it’s a good time to gift these assets because of less CGT that would be paid. Trusts are another option as well, but there are plenty of different ways to lock in the bonuses now.
“In these uncertain times it’s best to prepare in any way possible, and getting ahead of the curve now will pay off in the long run should APR and BPR reliefs be reduced.”