Arguably, IHT had become a bit of a boring tax. For most business owners, it was largely irrelevant because of the availability of BPR (Business Property Relief) and APR (Agricultural Property Relief). There were always things that these did not cover, but generally, the lion’s share of the valuations were exempted. It was only after you sold up and were holding cash or equivalent that IHT became a problem. So, it was rarely high on anyone’s agenda.

How things have changed! I think that it is now relatively high on the agenda of most business owners, and we are getting enquiries coming in all the time. Most still do not have anything to worry about, but a significant proportion need to consider what they want to implement ahead of the changes being implemented next April.

Of course, we have another budget in November, and we do not know what new money-raising plans the Chancellor has in store. It could be hitting something like the removal of the tax-free CGT uplift on death, which has been floated a few times, or it could potentially be further tweaking to the proposed changes to  IHT. It’s one of the wonderful things about tax that you can never be sure your crystal ball is working properly. I think mine has a flat battery!

The way around IHT can be very simple. Give everything away and live 7 years. But there are so many other considerations to take into account, not least that you are probably not ready to give your business away to the next generation just yet.

Generally, business owners like to keep their hands on the tiller. The business may have been your baby that you have built up over the years. You have been in the hot seat for so long that it is difficult to let go.

I think that the big issue with the IHT changes has been the speed with which such fundamental changes are being introduced. It will not matter so much for younger business owners who have time to plan a decade or more ahead. It is the older generation who expected to hand over everything on death that has been so seriously and unfairly caught out. Many will be of an age now when there is an increasing chance of them not surviving the 7 year period needed to take the gift out of IHT. This is particularly the case with family farms. For decades, the transfer to the next generation was largely on death when there was no IHT, and there was a tax-free uplift of the value of the land. It could all be handed over virtually tax-free.

Somebody just changed the rules.

The outcome will inevitably be that current owners will pass over assets or shares in family companies to the next generation sooner rather than later. This may trigger a Capital Gain, but you should be able to hold over the gain so that, at the point of transfer, there is no tax.

There will be some assets on which you cannot hold over the gain, such as let properties, and there could be a cost here. But compared to the IHT on these assets later, it is likely to be a fraction of the tax.

At the end of the day, you still have your transferable lifetime allowance of £325,000, and if you leave your house to your children, this rises to £500,000. That’s a million pounds per couple.

The lifetime allowance renews every 7 years, so you can use it to transfer assets piecemeal during your lifetime if you are young enough. The BPR/ APR relief of £1000,000 each also renews every 7 years, but cannot be transferred between spouses in the same way as the lifetime allowance.

If you want to give away your home, there are also issues. If you want to continue to live in it, there are conditions to be met, but if you are moving out, that is fine.

So, what does all this mean? Well, these are just some general comments, and the strategy you adopt should be tailored to your own circumstances. Everyone is going to be different, whether that be due to age, family relationships or the assets you have accumulated. That is where there is no real substitute for getting professional advice specific to your situation.

But don’t leave it to the last minute. Not only will many other people do the same, but legal processes take time. The clock is ticking!

 

Alan E Long

The Long Partnership

07770 738770