Business property relief could land on Labour’s chopping block, after the latest figures revealed that the combined value of agricultural and business property relief rose to £4.4 billion in the 2021/22 tax year.
The figure is up £0.2 billion, or 5%, on the previous tax year.
The most used relief was the exemption between spouses and civil partners, which sheltered £15.5 billion of assets from tax. The second most valuable relief was BPR, which protected assets worth £2.9 billion.
Laura Hayward, tax partner at Evelyn Partners, said: “Criticism of business relief often focuses on the inclusion of AIM shares, which many consider an anomaly. But that should not deflect attention away from the important role that these reliefs play for many businesses. The aim of BPR was to ensure that family-owned businesses should continue to trade after a death. If these reliefs were abolished or significantly restricted, the application of a top rate of 40% inheritance tax would in many cases mean the business had to be sold on the death of the current owner to pay the tax bill. This would have significant implications for the employees and the stability of the business.”
Hayward said that very wealthy individuals may have other assets from which to pay inheritance tax, so this would be a particular burden to those whose farm or business is their main asset and livelihood.
Hayward added: “The current legislation has been regarded as demonstrating sound commercial sense in allowing businesses to continue without the looming risk of a forced sale on death. Farming businesses would often become unviable if a substantial proportion has to be sold.”
Hayward said that while these reliefs have attracted criticism, with the implication being that wealthy individuals may invest in farmland or small businesses purely to shield their wealth from inheritance tax, a report by HMRC found that inheritance tax planning was primarily driven by a desire to keep businesses and farms intact on the death of the owner, while a reduction in inheritance tax liabilities was a secondary concern.
Shaun Moore, tax and financial planning expert at Quilter, also pointed out that changes to BPR would have a detrimental impact on the AIM market.
He said: “Labour might opt to remove APR for those who do not actually own farmland and BPR where it doesn’t meet the intention of the relief i.e. protecting small businesses being kept ‘in the family’. However, the unintended consequences could be huge especially for the AIM market which relies heavily on the shares being eligible for BPR after holding the shares for two years. This might therefore hamper Labour’s stated aim of getting more investment into UK plc.”
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