The recent Labour budget has introduced changes that could significantly impact small businesses, particularly with regard to Business Property Relief (BPR)
On Wednesday 30 October 2024, Chancellor of the Exchequer Rachel Reeves presented the Autumn budget to Parliament. This was an anticipated announcement which set out proposed changes to UK tax and spending policy. This article will consider how changes to Business Property Relief (BPR) may impact small businesses.
What is BPR?
BPR reduces Inheritance Tax (IHT) payable on qualifying business property. In other words, it is a tax relief designed to reduce the IHT burden on certain business assets. The effect of BPR is to reduce the value of a taxable transfer of business property by the value of the asset itself. Usually, IHT is charged at 40% on estates above a certain threshold. However, qualifying business assets can attract 100% tax relief which means that there is no IHT payable on that asset. Some businesses and/or business assets can therefore be passed down through generations without incurring significant IHT consequences. Small and family run businesses tend to especially benefit from this relief.
What are the proposed changes?
Labour have proposed to reform Agricultural Property Relief (APR) and BPR from April 2026. It is expected that the 100% IHT relief will apply to the first £1 million of combined business property and agricultural property and above that, the rate of tax relief is expected to be 50% so an effective rate of 20% on those assets above the threshold. The Government plan to reduce the rate of BPR available from 100% to 50% on shares that are not listed on the markets of recognised stock exchanges.
What is the impact on small businesses?
These changes to BPR will result in an increase in tax revenue from wealthier estates. However, they could also affect small businesses and those who inherit small businesses.
In some circumstances, the proposed BPR changes will result in higher IHT bills and unfortunately, many small businesses may need to be sold to cover the tax liability. As a result of BPR restrictions, small businesses could also face new challenges securing investment and may have access to fewer funding options. Some small start-up business may struggle to really get going, because BPR eligible investors are reluctant to invest.
If this pattern emerges, there will be less diversity of business ownership within local economies which could have a variety of knock-on effects.
What can small businesses owners do?
Small business owners should be proactive in preparing for the future. At Weightmans, we can offer business owners support and advice in view of the changing regulatory landscape. We can create succession plans to reduce exposure to IHT and explore options including lifetime gifting and establishing trusts. We offer a bespoke and specialist service, offering individually tailored advice. If you are a business owner or are worried about the impact of IHT on your estate and are seeking advice following on from the recent labour announcement, please contact our Private Wealth and International Private Wealth teams.
For more information on business property relief contact our corporate solicitors
