Inheritance Tax Policy and Family Business
21st June 2019
At our recent conference in Bath I gave an update on the IFB’s advocacy work, and the ways in which we are working to make sure the needs of family businesses are being heard by policy makers. One area our members are always interested in hearing about is the discussion around the future of Inheritance Tax.
Over the past few weeks you may have seen discussions in the media about the use of tax reliefs – and inheritance tax reliefs in particular. Earlier this year HM Treasury consulted on the taxation of trusts (read the IFB's response here). And the Office for Tax Simplification (OTS) has also been reviewing Inheritance Tax for the past year.
The IFB submitted evidence to the OTS last year, and we expect their report to be published shortly. In our submission we highlighted the ongoing importance of Business Property Relief (BPR) to family businesses. We know that without BPR the death of a major shareholder could lead to break up of otherwise successful businesses.
Whilst Inheritance Tax falls under the personal taxation regime, the reality is that the cost of paying the liability would fall on the business, as individual shareholders don’t have sufficient assets outside the business to meet the tax charge. Without BPR businesses would either need to sell, break up the business or limit investment to be able to pay a hefty tax charge.
BPR is also an example of how tax reliefs can support business growth, taking away a disincentive to grow. Some 85,000 family SMEs are expected to transfer ownership of their business to a new generation each year. Around 84% of family SMEs are estimated to be first generation businesses. BPR supports these families in continuing to invest and grow under stable ownership, and successfully transitioning to the next generation.
Supporting the successful transfer of family businesses, and taking away the disincentive to grow, benefits the UK economy as a whole. Figures released last month show that 13.4 million people in the UK now work in family firms, and those businesses contribute £182 billion in taxes – that’s more than the NHS budget for 2017/18.
We also highlighted two areas where we think the OTS should recommend changes to the BPR regime, to simplify the system and make it work better for family businesses. The first was around joint ventures, and whether they are considered investments for tax purposes. More family firms are using joint ventures – particularly when it comes to international trade – and the tax system should be updated to take this into account. Our position on this was backed by the Centre for Policy Studies last month.
We also recommended changes to the administration of valuations, a process which is often complex and costly. We recommended a new process whereby HMRC introduced a policy of accepting valuations made by credible professionals unless there are reasonable grounds not to do so.
We are expecting the Office for Tax Simplification to report before Parliament begins its summer recess. Their recommendations will then be considered by the Treasury, and we would expect an announcement at the Budget if the government intends to take any of their recommendations forward.
The IFB will, of course, continue to campaign for policies which work for family businesses and ensure they can continue their successes for generations to come.