Saturday, September 30, 2023

UK
Labour plots ‘devastating’ inheritance tax raid

Charlotte Gifford
Thu, 28 September 2023 

Labour is considering scrapping two exemptions – agricultural and business property relief - Dan Kitwood/Getty Images Europe

Labour is planning a “devastating” multi-billion pound inheritance tax raid which could affect farmers and family business.

The party is considering scrapping two exemptions – agricultural and business property relief – that currently allow farms and businesses to be passed down at death without their families paying the divisive 40pc charge.

It is part of a plan to scrap a number of tax reliefs in a “loophole” closing exercise which the party believes could raise as much as £4bn, according to the Times.


It is unclear whether Labour is considering scrapping the relief in its entirety or reforming the exemption so it can no longer be used by investors who own agricultural land but are not full-time farmers.

Under the current rules, agricultural property can be 100pc exempt from death duties. Business property relief also protects family firms being passed down the generations, but also exempts some Alternative Investment Market (Aim) shares from inheritance tax – providing a tax planning tool for those with spare cash to invest.


It in part explains why wealthier individuals on average pay a lower effective rate of inheritance tax on their estates compared to middle-class families who typically have the majority of their wealth tied up in family homes which are not protected by the same tax breaks.


Experts warned scrapping the reliefs in their entirety would lead to the sale or break up of family farms and businesses in order to pay inheritance tax bills.

It comes amid rumours the Conservatives are considering abolishing inheritance tax altogether, or increasing allowances, in an effort to secure victory at the next general election as struggles against Labour in the polls.

The Telegraph, alongside more than 50 Conservative MPs, is campaigning for the duty to be scrapped.

Agricultural Property Relief, which allows farmers and investors to pass on land without paying the death duties, saves around £1bn from the taxman every year, according to data from HM Revenue and Customs.

Meanwhile Business Relief lets families claim tax relief when inheriting business assets or shares in a company.

Entrepreneurs, farmers and investors ringfenced £3.2bn from death duties through the exemption in 2020-21, the latest year for which full data is available – making it one of the most valuable inheritance tax reliefs.

Sean McCann of financial advice firm NFU Mutual said: “Removing Agricultural Property Relief could be devastating for the UK’s traditional family farms. Financial returns from agriculture can be lower than many other businesses. Agricultural

Property Relief enables farmers to invest in their long-term future with the knowledge their farm is sustainable for the next generation.

“Similarly, removing Business Property Relief would be a significant disincentive to business owners, and is likely to mean that in many cases the next generation would need to borrow significant sums to pay the tax, rather than to invest in future growth and jobs.”

It is understood that Labour is also considering removing business asset disposal relief, which allows individuals who own more than 5pc of a company to pay less tax when they sell their stake.

Reports suggest Labour will not announce the tax rises until shortly before the election campaign but will use them to fund pre-election giveaways.

Rachael Griffin of investment firm Quilter said that the idea of scrapping agricultural and business property reliefs have been “tabled by a number of think tanks” in recent years, saying it was “likely the Conservatives will be mulling over the possibility too”.

Cutting Business Property Relief would impact investors with shares in unlisted companies, preventing them from claiming 100pc inheritance tax relief on their investments and leading to an exodus from Aim shares, she added.

Those in favour of removing these exemptions argue that it will impact the wealthy whose estates are more likely to contain farmland, businesses and large investments.


But the now-disbanded Office of Tax Simplification acknowledged in its 2018 report on inheritance tax that both Agricultural and Business Property Relief play an important role in ensuring farms and businesses are able to survive as they are passed down the generations.

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Mikhail Bakunin Archive


ABOLISH INHERITANCE


On the Question of the Right of Inheritance



We intend that both capital and land—in a word all the raw materials of labor—should cease being transferable through the right of inheritance, becoming forever ...

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