Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/new-model-adviser/article/a537053
Standard Life: 2012 Budget could end IHT business exemption
by Alex Steger on Oct 28, 2011 at 07:31
An exemption in the current inheritance tax (IHT) regime which means shares in unlisted companies escape inheritance tax may be changed in next year’s budget, warns Standard Life.
Julie Hutchison (pictured), Standard Life’s head of international technical insight, said the current exemption - business property relief - had been arrived at by accident rather than design and was an unintended consequence of rules structured to give a tax break to business owners not investors.
‘At the moment if you buy unquoted shares and hold them for two years they’re exempt from IHT and there’s two very different things that could fall within that; there’re people who are just buying a portfolio of shares and they just happen be of that type (unlisted companies), and there are people who are the business owners,' she said.
‘You can understand in that scenario how an IHT exemption could apply because you want to pass on this economic entity that you’ve created to somebody. Compare that with just good stock picking that happens to qualify for this relief.’
Hutchison said she could see the treasury changing the rules so that the exemption remained for business owners but not for external investors.
‘In terms of things that could happen in the budget in spring I would not be at all surprised to see that touched on, so family businesses are treated in a different way to people who just happen to have a share portfolio put together a certain way,’ she said.
‘For financial advisers who’ve been involved in that kind of portfolio advice they might want to have one eye on the fact that the Mirrlees Review and others have flagged that this is somewhere the original policy intentions of IHT are no longer being carried out.’
Markets
News sponsored by:
Today's top headlines
More about this article:
More from us
- Adviser Insight: Why IFAs must not flinch from IHT planning
- Tax planning: Five steps for estate planning
- Nice ideas, shame about reality: the barriers to Mirrlees tax reforms
9 comments so far. Why not have your say?
Joe Cooper
Oct 28, 2011 at 08:18
Presumeably this would work retrospectivly as the relief is only claimed on death.
report thisJohn_Weaver
Oct 28, 2011 at 08:28
Very interesting, but very unwelcome if it transpires.
Buying BPR qualifying assets and then moving them into a discretionary trust afer two years is a very powerful wealth management tool.
Thank you Julie.
report thisTony Laverick
Oct 28, 2011 at 08:33
If it were not for the BPR, many of these shares would be completely out of favour.
report thisStratfield
Oct 28, 2011 at 09:15
An attack on BPR? No chance, and I doubt that any attack on IHT is on the cards. But PPR might be a different kettle of fish....
report thisMan of Kent
Oct 28, 2011 at 09:16
Sorry, Julie, no-one buys a portfolio of shares which 'just happen be of that type (unlisted companies)' - you either buy them for an investment purpose or a tax purpose. In either case it sends much-needed money into this market. I don't believe that removing this relief for unquoted shares will save the Government much in the way of IHT avoided, but it will certainly close off a useful source of investment capital for these small companies, who have probably found it difficult to source money since the credit crunch hit.
report thisIain Black
Oct 28, 2011 at 09:32
I thought Julie's job was to be of assistance to IFA's not to put ideas in the head of the Government!!!!
Not very helpful to IFA's Julie, thanks!
report thisGordonPugh
Oct 28, 2011 at 10:22
By removing this relief, an immense amount of capital would be pulled from AIM causing fear and lack of confidence in the market and further financial uncertainty, which is highly unlikely to be allowed by the government.
Sometimes you have to look at the wider impact before making outlandish suggestions and scaremongering. Very naughty Julie!
report thisJulian Stevens
Oct 28, 2011 at 11:24
Such a move would hardly chime with the Conservatives' pre-election pledge to raise the IHT Nil Rate Band threshold to £1m. But then the Conservatives said they were going to put right all the damage done to the pensions framework over the preceding 25 years and look what they've done to honour that. They also pledged to reinvigorate the economy ~ like raising VAT to 20% is going to help with that aspiration?
It wouldn't surprise me if the Conservatives said they were going to do something about the injustices of the current FS regulatory regime, yet all the government has done is declare that the FCA, like the FSA before it, will be accountable only to its own board. And politicians wonder why we neither trust nor respect them. Then again, maybe they don't and nor do they care. Being a politician seems to be about saying one thing but doing quite another.
report thisGordonPugh
Oct 28, 2011 at 12:52
By removing this relief, an immense amount of capital would be pulled from AIM causing fear and lack of confidence in the market and further financial uncertainty, which is highly unlikely to be allowed by the government.
The wider economic impact of legislative changes need always to be considered when comments like this are made. We have seen trust law and life policies targeted in the past but this is usually because there is no inherent risk associated with them. The government usually only change legislation regarding investment on a forward looking basis.
Whether there are any grounds for this change (and I suspect not!), it is always advisable to use as many different legislative routes (gifting, trusts, BPR, life policies) to IHT planning as possible to minimise any future threat.
report thisleave a comment
Please sign in here or register here to comment. It is free to register and only takes a minute or two.