Inheritance tax protests – it’s not just the farmers

As farmers protest the Government’s proposals to change inheritance tax, the merchant in dustry should be right alongside them. Many people are realising that the new proposals go far beyond Agricultural Property Relief (APR) and also includes Business Property Relief (BPR). This could have significant consequences for many family-owned builders’ and plumbers’ merchants.

APR and BPR previously allowed 100% inheritance tax relief on qualifying business and agricultural assets, with no cap. The new rules introduce a threshold; combined agricultural and business property assets up to £1 million will still receive 100% relief, but anything after that will receive 50% relief. This means they will be taxed at an effective rate of 20%, payable over ten years interest free.

The usual caveats apply in respect of being able to transfer property at least seven years before death and being able to transfer standard household tax allowances, if the assets are owed by a couple. However, many family-owned businesses will now need to prepare for inheritance tax in ways that were previously unnecessary.

Chris Hayward, CEO at NMBS explained: “The rationale behind the changes to inheritance tax is clear: for decades, farmland has been used by a wealthy few as a tax haven. However, the introduction of a cap to close this loophole did not account for the unintended consequences to our sector. Many family merchants have large investment in land, buildings, machinery, vehicles, stock and working capital, because of the nature of their businesses, which puts us right alongside the farmers.”

Here’s a breakdown of the potential impacts on the family-owned merchants:

1. Increased tax burden

• Family-owned businesses may face inheritance tax on the value of their business assets upon the death of the owner, without BPR
• Businesses could have to sell assets, downsize or liquidate entirely to meet tax obligations

2. Intergenerational continuity challenges

• BPR enable a smooth transfer of ownership to the next generation. Reducing the relief could disrupt succession planning, as heirs may struggle to finance the tax liability
• Family businesses could become vulnerable to financial instability during transitions, affecting long-term viability

3. Reduced investment incentives

• Entrepreneurs may be less inclined to invest in family businesses if they perceive significant tax liabilities in the future
• Businesses may defer expansion or risk-taking to preserve cash for potential tax payments

4. Impact on employment

• Family businesses often contribute significantly to local economies and employment. A reduced BPR could force businesses to cut jobs to manage the increased tax burden.
• Struggling businesses could also reduce community investments or philanthropic activities.

5. Disincentives for long-term ownership

• BPR encourages owners to retain and grow their businesses for the long term. Without it, they might consider short-term profits or selling the business to larger organisations.

6. Economic ripple effects

• Family-owned builders’ and plumbers’ merchants provide an essential part of the building materials supply chain and are a major employer in local economies, especially if the Government is to fulfil its promise to build 1.5 million homes in the next five years.

What needs to change?

Chris added: “The intention behind capping APR and BPR is sound, land should never have been used as a tax haven. This policy needs to be fair and find a way to support family-owned businesses, especially those working to support the building of new homes or maintain or retrofit our existing housing stock, like independent merchants.

“The Government must recognise the vital role construction plays for the UK economy. Tax relief or exemptions should be targeted at the businesses who are actively growing the economy, as was evidenced post-pandemic when construction led the recovery.”

Farmers are not the only industry impacted by the Government’s changes to inheritance tax. Family-owned independent merchants are facing similar issues that risk the viability of their businesses. As an industry we need to support each other to ensure the longevity and success of our sector as we are forced to adapt our ways of working and plans for the future.