Author: David Thurlow
Chartered Financial Planner and Investment Manager - Member of the Investment Committee
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Published: October 2024
Changes to the rules around Business Property Relief announced in yesterday’s Budget could have serious ramifications for anyone impacted, but worse than that, could see estates facing an Inheritance Tax Bill they have no means of paying.
Currently relief of up to 100% is available on qualifying business (and agricultural) assets. This means that, in most cases, no Inheritance Tax (IHT) is payable on death in respect of these assets, which include shares in most private companies and farms. From April 2026, the IHT regime will change so that only the first £1 million of value will be exempt from IHT with the value of these assets in excess of this taxed at 20%. The National Farmers’ Union has picked up on this, concerned – rightly – that family farms will need to be broken up to pay the IHT.
But it goes further than this. If a family farm or a family business has to be sold to pay the IHT, this might take time and, in the case of family businesses, it might not even be practical. It is unlikely that a sale could be concluded until probate is granted and this also takes time. As IHT is due 6 months after death and the government has also announced that the interest on late payment is being increased to base rate + 4% (currently 9% per annum), the interest could cause considerable further value destruction.
For angel investors and those with non-controlling stakes in private companies the situation is worse still, as it is very likely executors will have no control over the timing of any share sale. If the value of these assets is over £1 million, IHT will have be paid on the excess, even though the value cannot be realised until some indeterminate date. This can lead to the very real possibility that an estate could find itself with insufficient money to pay the total IHT bill and no visibility as to when that money will be available. And all the time, interest is building up on the tax due at (currently) 9% per annum.
The risk of this financial cliff-edge is likely to reduce the levels of investment by individuals in young, growing companies, damaging the government’s growth agenda.
For significant investors in private companies, this is a financial cliff-edge that needs to be considered before the new rules come into force, so that action can be taken where possible to mitigate the impact, before it is too late.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The Financial Conduct Authority does not regulate estate planning and tax planning.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
