Depending on the facts, 100 percent or 50 percent of the value of certain businesses/business assets satisfying minimum ownership requirements can qualify for Business Property Relief (BPR) and, as such, currently qualify for exemption from IHT. Qualifying shares listed on AIM can also qualify for 100 percent BPR. Demos recommends BPR should be reworked to ensure it provides value for money. What this means and how to make it happen is much harder than it sounds.
HMRC’s IHT statistics indicate in tax year 2020/21, assets worth £3.2 billion qualified for BPR – a significant asset base to consider.
Earlier this year, the Institute for Fiscal Studies restated its recommendations to cap BPR at £500,000 per person. Demos says 77 percent of those claiming BPR in the UK in 2020/21 had business property worth under £500,000, so would be unaffected by such a change. Yet it acknowledges larger businesses valued at over £500,000 could be adversely affected if they had to sell off parts of their business to fund tax payments. These brief statements illustrate that reforming tax rules so often creates winners and losers.
The report offers high-level comparisons with some other G7 countries as follows:
- Japan offers a deferral rather than exemption for unlisted shares in certain family companies;
- In France, certain business assets can qualify for a partial exemption for up to three-quarters of their value; and
- In Germany, complex rules exempt transfers of certain assets up to EUR 26 million and taper relief above this amount up until EUR 90 million.
Learning lessons from other jurisdictions could be useful, although direct comparisons are always tricky due to the inherent differences in tax regimes in other countries. Additionally, the behavioural side of tax policy changes are often difficult to predict.
