Assuming no surprising turn of events has befallen us, our current monarch, King Charles III should have celebrated his coronation at the weekend, with his loyal subjects enjoying the extra bank holiday as reward for all that vigorous flag waving over the weekend.
But while business owners (other than those selling commemorative coronation curios) may be less pleased at the additional lack of employee productivity during May, perhaps there is another way in which British entrepreneurs could seek to be more kingly in their lives- by paying no inheritance tax (IHT).
Back in 1992, the late Queen’s annus horribilis, she agreed to pay income and capital gains taxes on her royal income, but the royal family do not pay inheritance tax on the assets that pass down through the family. Much has been made of the new King’s inherited wealth, which has been added to his own substantial wealth as erstwhile Prince of Wales. Unfortunately, most of his subjects, those who are domiciled in the United Kingdom in any case, are not so lucky and are liable to pay tax above a nil rate band (and possible residence nil rate band), the amount of which has been frozen at £325,000 since 2009.
So how can we better emulate our Head of State? Those owning businesses can perhaps breathe easy given the current relief available on business assets, known as Business Relief. Where a business is carried on (although not certain disallowed activities, such as property rental or investing), unquoted shares and assets owned by an unincorporated business can benefit from relief on up to 100% of value on death. The purpose of this was to prevent a family business needing to be sold in order to pay an IHT liability on death. Currently, in addition to IHT relief, business owners who die while still owning their business or company shares also receive an uplift in value for CGT purposes on death. This means that, were an inheriting family member to sell a company the day after a death, in theory they could pay no IHT nor CGT on those proceeds. As with all good things, the end of this ‘double benefit’ has been vaunted for many years, but so far, no changes have been mooted.
This is, of course, an attractive proposition and in certain circumstances leads to older generations ‘holding on’ to business assets longer than is good for them or for the business in order to minimise tax. This has only been exacerbated by the recent adverse changes to Business Asset Disposal Relief, which allows for a 10% CGT rate on only the first £1million of gains. Nonetheless, there are ways in which operational control can be passed on while retaining effective ownership.
At a time when we need businesses to be exciting, dynamic and looking to make investment in order to stimulate our economy, this is another example of how the tax system sometimes seems to work at odds with business. Of course, as exciting and dynamic tax advisers, at Claritas we regularly look at the options that are available to pass businesses on to the next generation or beyond without incurring a tax liability, but the risk that tax policy will stifle business remains. Other commentators on tax will highlight other areas of contradiction or’ ‘injustice’ within the tax system, but in today’s age where businesses and individuals can set up wherever best suits them, it is key that our tax system remains competitive and attractive no matter who is leading our country, or we risk losing the entrepreneurs key to our economic survival.
