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Labour Party’s intention to strengthen public services could mean changes to inheritance tax (IHT) policies that could significantly impact solo self-employed business owners and family-owned businesses, according to news sources. These reforms, aimed at closing loopholes and increasing tax revenue, may remove key exemptions for small business owners including agricultural and business properties, potentially leading to severe financial consequences for affected families.
The Guardian reported that a Labour memo estimated that raising CGT rates could generate £8bn for the Treasury. There are also plans to consult on overhauling inheritance tax in the autumn, potentially including radical changes to agricultural land and business relief. HMRC might be asked to prepare figures on various options next month, which the OBR would then analyze over 10 weeks before sharing with the Treasury.
Where do we stand now and what could change?
Currently, Business Property Relief (BPR) and Agricultural Property Relief (APR) allow family businesses and farms to be passed down without incurring the 40% IHT charge. The Labour Party could be considering abolishing these reliefs, which could raise between £4bn and £8bn for the treasury, according to various news sources that have been reporting on the possible tax implications over the past year. However, the removal of these exemptions could force heirs to sell parts of their inherited businesses to cover the tax liabilities, undermining the continuity and stability of these family enterprises.
For solo self-employed business owners, the elimination of BPR means that passing on a business to the next generation could become financially unviable without significant restructuring or external funding. This scenario is particularly concerning for those with property investment companies, as such businesses do not typically qualify for IHT relief, leading to potential liquidation or heavy tax burdens when transferring ownership, according to news site Land Lord Zone.
Fairer for whom?
Additionally, these proposed changes might deter investment in family businesses and agricultural ventures. The uncertainty and increased financial strain could lead to reduced growth and job creation, impacting the broader economy. Critics argue that while the intention behind the policy is to ensure a fairer tax system, the practical implications could be devastating for small and medium-sized enterprises (SMEs), which are crucial to the UK’s economic fabric.
Family-owned businesses and farms are especially vulnerable, as their financial returns are often lower compared to other sectors. The removal of APR could jeopardise the long-term sustainability of traditional farms, affecting food production and rural economies. Experts warn that such tax changes could lead to the breakup of multi-generational family farms, further diminishing the agricultural sector’s viability.
Keep informed
As the Labour Party continues to refine its policy proposals, it is essential for solo self-employed individuals and family business owners to stay informed and seek professional advice to navigate these potential changes. Planning ahead can help mitigate some of the impacts, but the uncertainty remains a significant concern for many in the business community.
