Lauretta McGeown, Associate Director, Tax
Now is the time to have that discussion with your adviser to start planning to protect your family’s financial future.
HMRC published statistics show UK Inheritance Tax receipts for the tax year April 2020 to April 2021 were £5.4 billion, an increase of £190 million from the year before. Some more recent figures were made available when HMRC published the monthly bulletin on UK tax receipts on 24 August.
This data is provisional until aligned to the annual report to be published at a later date, but there is some interesting reading.
Inheritance tax receipts for April 2021 to July 2021 were £2.1 billion, which is £0.5 billion higher than the same period last year. The Chancellor’s freeze until 2026 on the tax-free threshold for estates will pull more people into the inheritance tax net.
The Chancellor will be looking for every possible avenue to increase tax receipts to help the post-pandemic recovery. It is difficult to see a Conservative government imposing an increase in the inheritance tax rate of 40%, but the subtle freeze on the nil rate bands may have set a precedent.
It is possible that an increased inheritance tax take could be achieved by removing or reducing reliefs such as the business and farming reliefs, which cost £3.49 billion in 2018/2019.
This is an opportune time to look at business succession planning. The business property and agricultural property reliefs, and the generous tax reliefs for gifts may be restricted or abolished, and so the scope for succession planning may be much more limited if postponed.
Use this prospect of a less generous taxation landscape as the catalyst for taking action that has not been given sufficient attention in your business plan. Succession planning is a process rather than an event, so the sooner you start the better.
Often family businesses are guilty of avoiding the difficult conversations that are required to secure the sustainability and success of the business for future generations. Succession planning can be as much an exercise in mediation as tax planning, but professional help is available to ease that process.
The assistance of a professional who is a competent, impartial, and an experienced sounding-board can be invaluable.
As a business owner do you need to consider children who are involved in the business and those who are not involved? Are there rivalries between children that could cause family dissent? Is the next generation competent to take over management of the business or should non-family members be employed?
Should you consider employee incentive options? How can you compensate family members who are not involved in the business? Should you gift assets? Should you use a family trust?
To find answers to these questions, contact your advisers and devise a holistic plan to give you peace of mind and financial security.
For further information or advice, Lauretta McGeown can be contacted at Lauretta.McGeown@ie.gt.com
Grant Thornton (NI) LLP specialises in audit, tax and advisory services.