HMRC has published a report on the influence of reliefs such as agricultural property relief (APR) and business property relief (BPR) on how individuals make decisions on IHT matters. Some commentators are concerned that this could signal the start of a reduction in these generous reliefs.
HMRC commissioned research between November 2016 and January 2017 aimed at understanding the motivations behind individuals’ decision making on IHT matters and the use of reliefs and exemptions in that process. The resulting report, ‘The influence of IHT reliefs and exemptions on estate planning and inheritances’, was based on a total of 80 interviews involving 21 testators and 25 beneficiaries who owned agricultural or business assets, and 34 agents. Specifically, the objectives of the research were to understand:
testators’ decisions about how they manage their estates and arrange tax affairs;
whether IHT reliefs motivate the types of assets that are purchased prior to death; and
what beneficiaries do, or intend to do, with the assets they inherit.
Understanding of IHT and awareness of APR/BPR was limited among testators and beneficiaries generally. Common misconceptions about how the reliefs apply included an assumption that all agricultural/business assets qualify for 100% relief from IHT.
Agents reported higher levels of awareness of APR compared to BPR, which they attributed to coverage of APR in farming publications and among farming bodies.
Three main factors underpinned most estate planning, namely: tradition; the succession of wealth; and the preservation of a business. Reducing the IHT payable on an estate was seen by many as important only insofar as it supported these primary objectives.
For agricultural assets, tradition and sentiment played a major role, with testators usually unwilling to part with them during their lifetime. For most, the objective of keeping the estate together was crucial.
For owners of business assets, many were driven by the desire not only to ensure the succession of wealth to provide financial security for their family, but also by an obligation to keep the business running beyond their death to financially support their staff. Overall, however, tradition and continuation of the business was less of a motivating factor outside agricultural businesses.
Agents felt the availability of APR/BPR and other reliefs was crucial and that without them many businesses would have to be sold on death to pay the IHT bill. It was a view widely shared among the interviewees that assets were rarely purchased specifically to make use of APR/BPR.
Trusts were used principally to ensure that assets were managed in a specific way after death and to provide an equal distribution of wealth among beneficiaries. Where tax advantages were mentioned, these related mainly to CGT.
Testators who gifted business assets during their lifetime as a way of reducing IHT liabilities did so mostly with little knowledge or understanding of BPR, although gifting was also common among testators wanting to retire and pass over assets to beneficiaries interested in keeping a business running.
HMRC has published a report on the influence of reliefs such as agricultural property relief (APR) and business property relief (BPR) on how individuals make decisions on IHT matters. Some commentators are concerned that this could signal the start of a reduction in these generous reliefs.
HMRC commissioned research between November 2016 and January 2017 aimed at understanding the motivations behind individuals’ decision making on IHT matters and the use of reliefs and exemptions in that process. The resulting report, ‘The influence of IHT reliefs and exemptions on estate planning and inheritances’, was based on a total of 80 interviews involving 21 testators and 25 beneficiaries who owned agricultural or business assets, and 34 agents. Specifically, the objectives of the research were to understand:
testators’ decisions about how they manage their estates and arrange tax affairs;
whether IHT reliefs motivate the types of assets that are purchased prior to death; and
what beneficiaries do, or intend to do, with the assets they inherit.
Understanding of IHT and awareness of APR/BPR was limited among testators and beneficiaries generally. Common misconceptions about how the reliefs apply included an assumption that all agricultural/business assets qualify for 100% relief from IHT.
Agents reported higher levels of awareness of APR compared to BPR, which they attributed to coverage of APR in farming publications and among farming bodies.
Three main factors underpinned most estate planning, namely: tradition; the succession of wealth; and the preservation of a business. Reducing the IHT payable on an estate was seen by many as important only insofar as it supported these primary objectives.
For agricultural assets, tradition and sentiment played a major role, with testators usually unwilling to part with them during their lifetime. For most, the objective of keeping the estate together was crucial.
For owners of business assets, many were driven by the desire not only to ensure the succession of wealth to provide financial security for their family, but also by an obligation to keep the business running beyond their death to financially support their staff. Overall, however, tradition and continuation of the business was less of a motivating factor outside agricultural businesses.
Agents felt the availability of APR/BPR and other reliefs was crucial and that without them many businesses would have to be sold on death to pay the IHT bill. It was a view widely shared among the interviewees that assets were rarely purchased specifically to make use of APR/BPR.
Trusts were used principally to ensure that assets were managed in a specific way after death and to provide an equal distribution of wealth among beneficiaries. Where tax advantages were mentioned, these related mainly to CGT.
Testators who gifted business assets during their lifetime as a way of reducing IHT liabilities did so mostly with little knowledge or understanding of BPR, although gifting was also common among testators wanting to retire and pass over assets to beneficiaries interested in keeping a business running.
