As a business owner, safeguarding the future of your enterprise and ensuring a smooth transition to the next generation is likely a key priority.
Whether your assets include agricultural land, trading businesses, or investment portfolios, the structure of your estate and succession plans can have long-term implications for your family and the business itself. With this in mind, it’s crucial to stay informed about upcoming legislative changes that could impact how your assets are treated for inheritance tax purposes.
The changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) could significantly affect family succession plans.
It’s common for parents to leave different assets to children based on their involvement in the family business.
For example, Child A may inherit the business, while Child B receives assets of equivalent value. But how do the IHT changes affect this balance?
1. Additional IHT liability on inheriting the business
Due to the additional IHT liability incurred on death, the net value of the business Child A would be due to inherit will diminish. Child A may also need additional liquid resources to ensure the IHT liability can be settled without significant detriment to the business.
This may require the parents to make additional provisions for Child A. This could be achieved by reviewing the terms of their Will and the division of the assets between their children to ensure that both are treated fairly.
2. Previous lifetime gifts
The parents could have made a number of lifetime gifts to Child B to compensate for the differing treatment arising on death. With the IHT changes, Child B may disproportionately benefit from the utilisation of other IHT allowances, primarily the Nil Rate Band.
To ensure a fair treatment between the children the parents may need to make additional lifetime gifts or adopt life insurance policies to potentially compensate child A.
3. Previous structures introduced for IHT planning
Trusts previously set up to benefit Child B may now need careful reconsideration.
If the changes to APR and BPR mean that the business interest inherited by Child A is no longer fully relieved from IHT, this could create an imbalance in how the estate is divided.
To address this, it may be necessary for Child A to also benefit from the trust—particularly if the trust holds significant value or liquidity. However, if the trust terms only allow changes during the parents’ lifetimes, it’s crucial that any amendments are made without delay to preserve flexibility and fairness in the overall succession plan.
When seeking advice about the proposed changes to APR and BPR it is imperative that the position beyond the headline IHT liability is considered.
Whilst there may have been a clear plan for the division of family assets this may no longer be appropriate. It is important that previous succession plans are reviewed and potentially flexed to accommodate the future uncertainties.
