Navigating new business property relief rules
This article explores the new business property relief (BPR) rules, their implications, and strategies for family businesses to adapt.
The recent budget changes have significantly impacted inheritance tax planning for family businesses. This is leading to more family businesses bringing forward their succession plans and starting to think about different ways to exit the business or pass it on.
Key points:
- Introduction of a £1,000,000 lifetime allowance for BPR: The government's budget introduced a £1,000,000 lifetime allowance for BPR. This means that family businesses can now only claim 100% relief on business assets up to £1,000,000. For assets exceeding this threshold, the relief reduces to 50%.
- Impact on agricultural property reliefs: The changes also affect agricultural property reliefs, which were previously more generous. These adjustments necessitate a thorough review of existing inheritance tax planning strategies to ensure compliance and optimal tax efficiency.
- New inherited pensions rules: From April 2027, inherited pensions will be subject to inheritance tax. This change adds another layer of complexity to succession planning, as pensions were previously exempt from inheritance tax.
“The Chancellor changed all of that. We now have a £1,000,000 lifetime allowance. Effectively, 100% relief is available up to £1,000,000 and after that the relief reduces to 50%”
Case study: the Jones family
Business: The Jones family owns a manufacturing business valued at £3 million.
Challenge: Under the previous BPR rules, they could have passed the business on to the next generation without incurring inheritance tax. However, with the new £1,000,000 lifetime allowance, they face a potential inheritance tax liability on the remaining £2 million.
Solution: The Jones family worked with their professional advisers to restructure ownership and explore insurance options to cover potential inheritance tax liabilities. They considered setting up a trust to hold shares, which would provide flexibility and control over the business operations allowing the business to continue operating smoothly after the current generation's passing.
Outcome: By proactively addressing the changes, the Jones family was able to develop a comprehensive plan that safeguarded their business's future and minimised tax liabilities. This approach ensured that the business could be passed on to the next generation without financial strain.
"People are certainly bringing those conversations forward. The urgency around planning has increased significantly."
Key takeaway: Family businesses will need to adapt to these changes by revisiting their inheritance tax planning strategies and ensuring they are well-prepared for the new rules. Engaging with financial planners and legal advisers to create a robust plan is essential to navigate these new challenges successfully.
Moving forward: The recent changes in BPR and inheritance tax rules present significant challenges for family businesses. However, with proactive planning and the right advice, these challenges can be managed effectively. Family businesses should start conversations early, engage with trusted advisers, and develop comprehensive plans to ensure their business remains within the family and continues to thrive.
It is essential that you seek advice from your trusted adviser as your situation is unique to your family business and will require a unique solution to meet your needs.
If you’d like to learn how we can help plan for the future you would want, reach out to us today at [email protected] and a member of our team will be back in touch to arrange a free, no obligation consultation.
Important Information
The information in this article does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. Investors should be aware that the price of investments and the income from them can go down as well as up and that neither is guaranteed. Investors may not get back the amount invested. Past performance is not a reliable indicator of future results. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. Brooks Macdonald does not provide tax advice and independent professional advice should be sought. Tax treatment depends on individual circumstances and may be subject to change in the future, so you should seek independent tax advice, as to your own position.
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