Looking ahead to the autumn budget: APR & BPR

There have been frequent reports in the media recently that the UK Government may be planning changes to inheritance tax agricultural property relief (APR) and/or business property relief (BPR) as part of its budget on 30 October.

CLA members, for whom these reliefs form a critical part of their succession plans, are understandably concerned. As a result, the CLA tax team has received a number of enquiries from members who are wondering whether there is anything they should be doing ahead of the budget.

At the present time, it is not possible to say whether the Labour Government will make any changes to APR or BPR in the budget. The party has been keeping this information very closely guarded.

While there have been many stories in the press speculating that the reliefs could be under review, we do not know whether there is any real basis for such reporting. The media could simply be reporting what some think tanks and commentators are suggesting to government.

• At the CLA Rural Business Conference last year, Steve Reed (now Secretary of State for Environment, Food and Rural Affairs) said that no changes to APR or BPR were planned.
• Labour did not mention APR or BPR in its manifesto or election campaign. When asked in a radio interview during the campaign whether farms would become subject to inheritance tax, Steve Reed replied that Labour’s spending plans did not require this.

That said, the government has stated that it is in a difficult financial situation with frequent claims that the national finances are worse than they realised. This could be interpreted as providing cover for tax increases or changes to tax policies.

This is a high priority issue for the CLA, and so as members would expect, we have been lobbying intensely.

We were in contact with the Labour party before the election, making the case for the need to retain APR and BPR. The CLA has also provided Labour with case study examples illustrating the impact that the removal of APR and BPR would have on farms and family businesses. Since the election, we have continued to argue this case as part of our government submissions.

• Removing or curtailing APR would jeopardise the future of family farms throughout England, no matter their size. BPR enables family businesses built up over time to be passed down without threatening their viability. In a recent CLA poll of over 500 landowners and farmers, 86% of respondents said it was ‘likely’ that some or all of their land would have to be sold upon their death if inheritance tax reliefs were scrapped. This poll was covered in the Sunday Telegraph, farming press and in other media outlets. Check out the results of the poll here.
• Inheritance tax reliefs allow farmers and rural business owners to continue to produce food, maintain landscapes and support the rural economy. Maintaining a stable capital tax system is important to provide business owners confidence to make long-term commitments, particularly those needed when investing for growth or to deliver for the environment over the coming decades.
• The tax reliefs in question do not apply automatically. Simply owning land is not enough to benefit from these reliefs as there is strict criteria to satisfy for the reliefs to apply.
• The government is prioritising growth of the economy, which would be seriously hindered by a restriction of the inheritance tax reliefs. If a business owner dies and their successors are required to pay inheritance tax at 40% of the value of the business assets, it is likely that they will need to sell off assets to meet that bill. That would result in either a downsizing of the business, or a complete closure.

The CLA is recommending that members write to their MPs to ask them to oppose any changes to APR or BPR. Guidance for doing so is available here.

In the light of possible changes to the inheritance tax reliefs, some CLA members are considering passing over their land and businesses to the next generation ahead of the budget.

Our advice is: do not to rush into any major decisions without ensuring that they are fully thought through.

As the saying goes “act in haste, repent at leisure”. Problems can arise when making a rushed decision for the wrong reasons.

Therefore, making a decision to handover assets in fear of possible tax changes, when we do not yet know in what way, if at all, the tax rules will be changing, is a dramatic step to take. Taking professional advice on all the implications is essential.

If you hadn’t already been thinking about your succession plans, and when to hand over your assets and/or the management of them, then as a first step we recommend that you look at the resources available to you on the CLA Succession Planning hub.

• Timing - Is now really the best time to gift assets? Does it tie in with your succession or business plans?
• What is best for the business? - Does your chosen successor want to take on the business and the assets? Are they ready to do so at this time?
• Your own financial position - It is vital to ensure that you retain sufficient sources of income to be able to provide for yourself for the remainder of your life. What if you gift over the business assets in the expectation that you will remain working in the business to have an income but you subsequently fall out with your successor that makes this impossible; or they decide to sell up leaving you with no income? What other income do you have to rely on? What are your contingency plans?
• Will rushing to make a gift now really save on inheritance tax? - You cannot give property away and still live in it or retain an income from it, since that would be a reservation of benefit. On your death, HMRC would treat your estate as though the property had not been given away and still charge inheritance tax on the value of the asset. You therefore ought to take independent professional advice before making any major gifts to check whether these rules will apply.
• The capital gains tax (CGT) implications - A gift of an asset would usually trigger CGT on the gain which is the increase in value from your base cost to its current market value. If the gift doesn’t qualify for reliefs, do you have the cash to pay the tax or will you have to sell assets to do so?