Paul Houston in our Personal and Business Tax Department reviews the long-awaited HMRC commissioned research into whether Inheritance Tax is being abused.
Inheritance tax (IHT) is an important source of revenue for the Treasury, with total income for the 2016/2017 tax year reaching close to £5bn*. Faced with the prospect of this golden goose laying more jewelled eggs, HMRC commissioned research earlier this year into the current use of inheritance tax reliefs, primarily Business Property Relief (BPR) and Agricultural Property Relief (APR). Both of these are meant to help individuals pass on their businesses to the next generation without requiring a sale of assets to meet the associated inheritance tax liability.
Although the catchily-titled ‘The influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances’ report was completed in May 2017, it wasn’t publicly released until the Autumn Budget on 22nd November. Originally commissioning the research led to speculation that HMRC suspected that the reliefs were potentially being abused, with the delay in publication perhaps signalling that HMRC had identified instances of misuse, and would announce them with a dramatic Christmas pantomime-style pulling back of the curtain on budget day.
However, in a true theatrical moment, HMRC (our Dame of this piece), after a number of dramatic scenes in the build up to the finale, found…. nothing. APR and BPR are generally being used for the purposes for which they are intended** and are not being misused. This means that the Treasury (the Sheriff in our panto) has not recommended to restrict the future use of the reliefs to generate more golden eggs. However, Buttons in our panto (played by the Office of Tax Simplification) recently announced that it intends to commence work on a review of inheritance tax in general, so this issue is still front and centre stage.
So, what does this mean? Anyone who plans to use BPR or APR should ‘look behind you’? In reality, individuals and family businesses will face increasing resistance when making claims for IHT relief and it’s more important than ever to seek professional advice at the earliest opportunity. HMRC’s findings provide reassurance that there is unlikely to be any immediate, radical changes to how IHT works but there are more reviews and consultations planned for the future and the conclusion to this fairy-tale may not have a happy ever after ending.
* An increase of around £3bn in five years largely due to the increase in property prices and the freezing of the IHT nil-rate band (currently £325,000)
**HMRC conducted 80 interviews with individuals, most of whom did not hold assets in excess of £325,000.
If you have a question about Inheritance Tax, please contact Paul Houston on 0131 558 5800 or email firstname.lastname@example.org.