What options are available to help mitigate BPR rule changes?

As reported in the FT Adviser, when farmers protested in Westminster at the end of last year, many in the tax profession were already considering their other clients - entrepreneurs and family businesses - who will be affected by the same issue as the farmers. Business property relief has also been reduced to 50 percent, like agricultural property relief, which means that any shares in a business valued at more than £1mn, will be subject to a 20 percent charge on death. 

Within the article, Partner and Head of Private Wealth, Hayden Bailey comments: “The reason that a family businesses can keep going and stay in family ownership is that it can be resilient, and take a long-term view about paying dividends; but these businesses rely on the fact that they don’t have to find large amounts of inheritance tax on a shareholder’s death – an event outside of their control.

“UK family businesses that employ a significant number of people in well-known British brands, they don’t necessarily make super profits, because family businesses tend to reinvest in their business and its sustainability with a very long-term view.”

He adds that when the rules change in April next year, executors of deceased shareholders may even find they have to sell the deceased’s home to fund the tax charge. Alternatively, the company might have to borrow to buy back shares to fund the IHT charge.

The parents can still stay running the business, and take a salary from it, but will be unable to take a dividend from it.

Bailey says there are also tax implications if dividends from the business are used to pay the 10-yearly tax bill.

“Many companies are held in family trusts which pay IHT every 10 years. For a company to extract money to pay the IHT it will have to pay a dividend, which is generally taxed at 39.35 per cent, leading to double taxation.”

Read the full article in the FT Adviser here.