New Report Recommends Changes to Inheritance Tax
5th July 2019
The Office of Tax Simplification (OTS) has today (5 July) published the second report on its review of Inheritance Tax (here).
The OTS report explores how IHT, and its associated reliefs, work in practice. The report reaffirms the importance of Business Property Relief (BPR) in ensuring that family businesses are able to continue to grow and thrive over generations. In my recent blog I mentioned this upcoming report, and spoke about the importance of BPR to family firms, and some of the recommendations we hoped to see around valuations and joint ventures.
The recommendations in the report focus on rules around gifts, the interaction of IHT and Capital Gains Tax (CGT), and use of Business and Agricultural Property Reliefs (BPR/APR). There are a number of changes that will be of particular interest to family business owners and advisers.
The first is on the interaction with Capital Gains Tax. The OTS states its view that the ‘capital gains uplift’ can distort decision making in relation to those assets which are exempt from IHT, and act as a disincentive to people passing assets on to the next generation during their lifetime.
We are pleased to see that the OTS has listened to our recommendations on the need to look again at the guidance and policies around valuations and joint ventures. The process around valuations is often complex and costly, so we welcome the recommendation that HMRC look again at that to see if there are ways to reduce the burden and administration costs for business.
And with more family firms are using joint ventures – particularly when it comes to international trade – it’s important that the tax system is reviewed to take that into account. Our position on this was also recently backed by the Centre for Policy Studies.”
One recommendation that will be of particular interest to families in certain sectors, is the OTS’ call for the Treasury to consider whether it is still appropriate for the level of trading activity to be eligible for BPR to be lower than that for gift holdover or entrepreneurs’ relief. We believe that the current level is appropriate, because it takes into account issues such as deaths occurring at different points in the economic cycle, and recognises that it is more difficult to plan for a death than for a business disposal.
The Treasury and HMRC will now consider all of the recommendations made by the OTS. We will continue to engage closely with them on that, and will keep sharing updates so family businesses can have early warning of any expected changes.
If you would like to share your views on the recommendations in the report, please contact me on email@example.com.