Hikes in Business Taxes Would be 'Detrimental for UK Growth'

Entrepreneurs could be driven away from the UK if the government attacks business relief on inheritance tax in the autumn Budget, according to a tax expert.

Karen Chadwick, of independent accounting and business advisory firm HURST, said that because the government has pledged not to raise income tax, employees’ national insurance and VAT, other taxes would be targeted, including inheritance tax, capital gains tax (CGT) and pensions.

Inheritance tax is usually charged at 40%, but business owners can currently qualify for up to 100% relief against the value of their company.

But Chadwick said that there is “real concern from entrepreneurs that this relief is at risk of being attacked” in the Budget.

“It enables a business to be passed on without a penal IHT charge on death and, where appropriate, during lifetime. If this relief is removed or restricted, this could lead to an even wider pool of assets falling within the scope of IHT on death,” she said.

“This could be detrimental for UK business and growth and could drive away entrepreneurs from the UK.

“If company shares are valued and subject to an IHT charge on death, this is what is known as a ‘dry’ tax charge, meaning there is no liquid cash with which to pay the tax as the value is locked within the shares.

“In my opinion, this could be adverse and damaging for the UK economy, given that we rely so extensively on owner-managed businesses to create jobs, and given that jobs are essentially created by people and not by government, despite their claims.”

IHT receipts for the government are increasing dramatically, raising more than £7bn a year.

Chadwick added: “There is much that owners and families can be doing generally in terms of IHT planning and passing assets down to younger generations to plan against a 40% IHT charge on death.

“Trusts and family investment vehicles can be efficient vehicles worth considering, although given the timescales between now and the budget and the level of uncertainty we are faced with, it is advisable to wait for the new rules and legislation before undertaking any detailed planning and restructuring.”