Family-owned property and agency businesses could face significant inheritance tax bills from this week as sweeping changes to Business Property Relief (BPR) come into force.
Law firm Taylor Rose has warned that the reforms – effective from yesterday (April 6) – will expose structural risks for business owners who had previously relied on full relief to pass assets down generations tax-free.
Under the new rules, 100% BPR will be capped at £2.5m per individual, with any value above that threshold receiving only 50% relief. This creates an effective 20% inheritance tax charge on larger estates.
The changes also impact AIM-listed shares, which will no longer qualify for full relief, while married couples can combine allowances to protect up to £5m – although this may offer limited protection for higher-value businesses.
FORCED SALES
For many property firms, where wealth is often tied up in the business rather than held as liquid cash, the shift raises the prospect of forced sales or restructuring to meet tax liabilities.
Taylor Rose says that it expects a sharp rise in enquiries as the impact of the reforms becomes clearer and business owners reassess succession plans.
Jacob Robinson (main picture), Private Client Partner at Taylor Rose, says: “Business Property Relief has long underpinned the assumption that family-owned companies could be passed on without triggering a tax event that threatens the business itself.
“That assumption no longer holds in the same way for larger businesses, particularly where company value exceeds the new thresholds and relief is no longer available in full.”
NO EASY SOLUTION
Robinson reckons that the impact will be felt most acutely by families whose wealth is tied up in the business rather than held in liquid assets.
In those cases, he says, even a 20% effective inheritance tax charge on part of the estate can create a funding problem that has “no easy solution” – especially where there is little spare cash outside the company.
He says: “The key risk is delay. If these issues are not addressed early, there is a genuine possibility that estates will be unable to meet inheritance tax liabilities without selling, breaking up or otherwise destabilising businesses that are otherwise viable and successful. Once that pressure hits, the scope for careful planning narrows considerably.”
SUCCESSION PLANS
And he adds: “That is why we expect a sharp uptick in activity once the changes begin to bite – but those who engage early will be in a far stronger position than those forced to react when a tax liability has already crystallised.
“Family-owned businesses should be using this window to revisit succession plans, review wills and ownership structures, and consider whether steps such as early gifting, restructuring or building liquidity outside the business may be appropriate.
“These are not easy decisions, particularly where control and flexibility are concerns, but leaving the issue until after the reforms take effect significantly limits the options available.”
