We explain why Inheritance Tax (‘IHT’) Business Property Relief (‘BPR’) is a key topic at the moment and how we are helping our clients to plan for the future.
In this time of increased uncertainty, there is an increased awareness around potential IHT exposures and an acceptance that big decisions around business succession and wealth transfers need to be made sooner rather than later.
As well as a shift in mindset, there is a recognition that changes to the current tax environment are inevitable. In the context of IHT specifically, January 2020 saw the release of a report advocating the “Reform of inheritance tax” by an All-Part Parliamentary Group which followed two office of tax simplification reviews also recommending a number of changes to the existing IHT regime. July 2020 also saw The Institute for Fiscal Studies release an initial report entitled “Is it time for a UK wealth tax?” and the wealth tax debate seems one which is set to continue, both domestically and internationally, for the foreseeable future.
Whilst there is speculation around potential changes to the existing IHT regime, the government have indicated that they do recognise the role that IHT BPR plays in enabling businesses to be passed on between generations without having to be broken up to pay IHT and that they consider this to be an important aim. Therefore, whilst there could be changes to IHT BPR, we do expect this relief will continue to have an important role to play in terms of business succession and wealth transition going forwards. We are continuing to work with clients to maximise and protect the availability of this valuable tax relief and some examples of ongoing projects include:
- Reviews: Performing reviews of corporate groups from an IHT BPR perspective to assess the availability of the relief, potential issues and to make recommendations to improve the current position, where relevant.
- Reorganisations: Undertaking group reorganisations where a preponderance of investment/non-qualifying activities mean that no IHT BPR is currently available, despite qualifying activities being undertaken within the group. This can be particularly relevant in the real estate sector where groups are involved in a combination of activities across the spectrum of development and dealing.
- Trusts: Establishing trusts with assets which qualify for IHT BPR as part of a long term estate planning strategy. Trusts continue to have a key role to play in terms of succession planning in a general wealth transfer / business transition context, as well as ahead of realisation events.
- Cashflow: Where IHT BPR is not available, or is not available in full, we are working with businesses and their owners to quantify the anticipated tax liabilities and to assist with cashflow projections to ensure that tax liabilities can be met at the relevant time. Given the financial stress that some businesses are currently experiencing, it is more important than ever for businesses to maintain accurate financial projections and to avoid unexpected liabilities from arising.
- Clearances: Seeking advance assurance from HMRC in relation to IHT BPR where there is an area of material uncertainty.
- Record keeping: Ensuring relevant records are retained from an IHT perspective in case of HMRC scrutiny. For example, to support significant cash balances being retained by businesses and the current financial crisis has justified those who have adopted a prudent approach in this context.