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Autumn Budget Analysis: Find out how the budget will impact you

By Graham Poles

24th January 2023

Could these tax reliefs be under threat?

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A recent report has claimed that a handful of tax reliefs, supposedly only available to the wealthiest minority of the population, cost the Government £4bn a year in lost revenue, – and suggests that they should be removed in the upcoming Spring Budget

The Resolution Foundation’s report lists Business Asset Disposal Relief, Business Property Relief, Agricultural Property Relief and the Residence Nil-Rate Band among the tax breaks they proposed should be reviewed.

But if these reliefs were to be removed, what impact could this have on many families and family-owned entrepreneurial businesses?

Tax reliefs when inheriting a business

Business Property Relief and Agricultural Property Relief allow families to pass businesses on through the generations without having to fund a tax liability, which can be up to 40% of the value of the business. Many businesses would not have the cash available to do this leaving family members with the difficult choice of either selling or taking on borrowing.  If they take on debt it can affect the ability of the business to grow and possibly its very viability.

There's no cash available when someone dies so it's a dry tax charge; a tax charge on the individuals for which they don't receive any money. The impact on that business would be huge and that might affect the number of employees the business can support and the onward progression of that family-owned business.

Business Asset Disposal Relief (BADR)

When disposing of your company, you may be entitled to Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) meaning you are subject to Capital Gains Tax (CGT) at the lower rate of 10%.

The previous lifetime gains limit of £10m has already been reduced to £1m. This makes it more focused on helping smaller entrepreneurial businesses.

For a small family-owned business, where they’ve built that business up, suffered tax on what they've drawn from the business and now they're realising the capital, that relief helps them potentially to move forward and do something else with the cash but is also a reward for entrepreneurial work that they've done.

To take away Business Asset Disposal relief may discourage entrepreneurial behaviour.

Main residence tax reliefs

One of the cornerstones of the CGT legislation has been the ability to sell your family home and not suffer tax on the sale, allowing you to move through the property ladder. This exemption has existed since CGT was introduced in 1965.

As house prices have just gone through a period of increasing, if people suddenly have to pay a tax on their family homes, it could prevent them from being able to move into new properties, without taking on even greater mortgages adding to the costs families face.  Furthermore, the tax rate on the sale of residential property is also the highest the Government charges for CGT at 28%. Those in this situation would lose nearly a third of any profit made on a family home. It is a significant amount and affects anyone who has had a gain on a family home. 

The Residence Nil-Rate Band, is an additional Inheritance Tax allowance of £175,000. It was a key government pledge to help families pass on their family homes to the next generation without substantial tax charges. 

Tax reliefs not just for the wealthy

These are really important reliefs for family and owner-managed businesses. They are critical in many respects, in terms of Inheritance Tax, to enable that business to continue, and in terms of Capital Gains Tax, to enable that business and families to grow and invest.

If you would like to explore these tax reliefs please get in touch.

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