The War on Inheritance Tax: Wheeling out the Big Guns
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A tax on inheritance was first introduced in 1796 in order to finance the war against Napoleon Bonaparte. Unfortunately for us taxpayers, taxes introduced in times of war have a habit of lingering in times of peace. But as Private Client Associate Andrew Kidd explains, there is a potential solution…
214 years on, Inheritance Tax remains a constant threat to savers, businesspeople and hardworking families alike. Despite the Conservative pre-election pledge of raising the tax-free threshold to £1 million, this has now been shelved as part of the coalition government’s austerity drive. |
The outgoing government did make some inroads into rebalancing the perceived punitive nature of Inheritance Tax by allowing unused nil rate bands to be transferred between spouses and civil partners.
Under the current rules of engagement, when someone dies they can leave £325,000 (the so-called nil rate band) free of tax to anyone and/or an unlimited amount to an ‘exempt beneficiary’, which will most commonly be a surviving spouse or civil partner.
When that spouse or civil partner dies, they then have their nil rate band and also their deceased partner’s, which effectively means they are able to leave £650,000 free of tax.
This still leaves a significant Inheritance Tax problem for many families, as the value of an estate over £650,000 is taxed at a flat rate of 40 percent.
Enter into the arena, Business Property Relief (BPR) as a weapon in the armoury of the Inheritance Tax resistance movement.
BPR has steadily grown as a viable option in recent times. Whilst it was originally the preserve of proprietors of family businesses, enabling them to pass on their businesses intact, it now has a potentially much wider application.
As well as its traditional use as a shelter from Inheritance Tax for qualifying companies owned for at least two years, BPR can now be deployed through portfolios of Alternative Investment Market (AIM) stocks and unquoted company shares. These investments are, of course, open to anyone and offer much greater degrees of access, control and flexibility than they might have historically been associated with.
Therefore BPR is potentially a viable tax shelter for anyone whose savings are considerable enough for them to be concerned about passing on an Inheritance Tax liability to their children or other family members. It was our great wartime leader Winston Churchill who said, “Let our advance worrying become advance thinking and planning”, and BPR is certainly a good starting point.
Please contact Andrew J. Kidd (ajk@silvermansherliker.co.uk) or Claudia S. Whibley (csw@silvermansherliker.co.uk) on + 44 (0) 20 7749 2700 for advice on Inheritance Tax and how it might impact on your estate. |
