How might the Budget impact tax reliefs for SMEs and farms? 

The upcoming Budget has everyone talking, and with good reason.  

There is a strong sense that changes are coming, and they might not be the kind of changes businesses and farms want to hear.  

Tax hikes seem all but certain, with Inheritance Tax (IHT) and Capital Gains Tax (CGT) likely to be in the crosshairs. 

So, what happens if the Chancellor takes aim at Business Relief (BR) and Agricultural Relief (AR)?  

These longstanding tax reliefs have been key for passing down family-run businesses and farms without being hit with substantial IHT bills. 

It is not difficult to see why the Government might look at these reliefs.  

In the search for ways to find funds, BR and AR could be seen as low-hanging fruit.  

This could have a significant impact on small and medium-sized enterprises (SMEs) and farming families alike. 

The importance of Business and Agricultural Relief 

Both BR and AR have been around since the 1970s, helping family businesses stay intact as they move from one generation to the next.  

Under the current system, qualifying business assets benefit from either 50 or 100 per cent relief on IHT, meaning shares or property can be passed on without triggering a hefty tax bill. 

Similarly, AR allows farming families to pass on land and assets with significant relief, something they have come to rely on.  

These reliefs are essential for long-term planning.  

Think investments in equipment or funding children’s agricultural education, all based on the expectation that the relief will continue. 

However, there is another side to this debate.  

Critics argue that these reliefs are often exploited by wealthy families as a way to reduce their tax bills, and that tightening these rules could close a loophole that allows some to avoid their fair share of IHT.  

This could mean that the Chancellor might target these reliefs in the upcoming Budget. 

The Inheritance Tax dilemma 

While IHT might be one of the least popular taxes, it does not bring in as much revenue as you might expect.  

In the 2023-24 tax year, IHT receipts totalled £7.5 billion – double the amount raised a decade ago, but still only affecting around five per cent of estates. 

This puts the Government in a tricky spot.  

If they want to make a real dent in tax revenue through IHT reform, they need to make sweeping changes.  

And that is where BR and AR come in.  

Altering these reliefs would mainly impact family-owned businesses, agricultural estates, and certain investors, raising the stakes for those who have relied on these exemptions for generations. 

A closer look at AIM shares 

Another area the Government might focus on is AIM-listed shares.  

At present, shares in companies listed on the AIM exchange qualify for business relief, providing investors with a tax advantage.  

While AIM shares play an important role in funding UK growth companies, some view this as another loophole that favours investors. 

If the Chancellor decides to reduce or even eliminate business relief for AIM shares, it could force a major rethink for investors and might change the landscape for growth company funding. 

Could gifting rules change too? 

Another potential change could involve the seven-year gifting rule.  

Currently, individuals can make gifts during their lifetime that are exempt from IHT if they live for seven years after making the gift.  

There is speculation that this period could be extended, meaning more estates could be drawn into the IHT net even when gifts were given years before death. 

While this might seem like an easy win for the Treasury, it could complicate things for families who have long relied on gifting as part of their estate planning. 

What about pension pots? 

Pension pots are another area of concern.  

At the moment, defined contribution pensions don’t count towards an estate for IHT purposes, and if someone dies before the age of 75, their beneficiaries can withdraw funds tax-free.  

The Budget could bring pension pots into the IHT fold, which would be a significant blow to families relying on those funds for financial security. 

What next for businesses and families? 

With the future of tax reliefs uncertain, it is time for businesses and families to consider their options.  

Now might be the time to review your estate plans and tax strategies.  

Preparing for potential changes will help your long-term plans stay intact, whatever the Chancellor announces. 

Contact us today for advice on your estate plans and tax strategies ahead of this month’s Budget.  

 

Awards and Accreditations

Get in touch

Get in touch

If you would like to see full details of our data practices please visit our Privacy Policy and if you have any questions please email contact@grunberg.co.uk.

x