The ATT is calling for a targeted approach to abuse of Business and Agricultural property relief, as it warns that Finance Bill proposals could have significant implications for business owners.
The ATT has responded to the Bill’s proposals on the treatment of liabilities for Inheritance Tax (IHT) purposes. The Bill includes provisions that can radically alter the basis of calculating the amount of IHT payable on an individual’s death. The proposals apply where an estate includes both (a) assets that qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR) and (b) a borrowing that was used to fund their acquisition. The Explanatory Notes published with the Bill explain that the provisions are designed ‘to remove the tax advantage that is achieved by arrangements which exploit the current provisions’. The ATT is concerned that this broad brush approach, which catches innocent and guilty alike, will be counterproductive.
Yvette Nunn, President of the ATT, commented:
“HMRC has identified what it regards as artificial or abusive use of existing BPR or APR provisions and has sought to reverse any resulting advantage. We strongly support attempts to stem exploitative behaviour; however it seems that HMRC have become convinced that any borrowing that is linked to the acquisition of an asset that attracts BPR or APR is necessarily artificial or abusive. That simply isn’t the case and the indiscriminate attack on liabilities linked to BPR and APR assets could damage confidence in their provision. One ATT member has already told me that there are over fifty businesses on her office’s client list alone where the provisions will apply to normal commercial borrowings; this is reflective of growing concern over the proposals.
“Many business owners have incurred perfectly normal commercial-based borrowings in the course of acquiring assets that qualify for BPR and APR. Some of these liabilities will have been in place for many years but, if the business owner dies after the Bill comes into law, the liability will be automatically matched with the relevant asset. The effect will be that the existence of a perfectly genuine liability will be completely ignored in establishing the taxable value of the estate.
“This broad brush approach is over the top. If there is abuse it should be the subject of a targeted approach to counteract it.”