Landowners could lose some of their inheritance tax protections under proposals reportedly being considered by the chancellor, Rishi Sunak.
Speculation is mounting that Agricultural Property Relief (APR) and Business Property Relief (BPR) rules will be tightened at the Budget on 11 March.
The chancellor is understood to be looking in particular at how wealthy individuals buy up land with the intention to use APR to avoid inheritance tax (IHT) on a greater part of their estate, according to reports in the Daily Mail today.
APR cost the Treasury some £515m in 2017-18, but is regarded as vital by many farming families to avoid a crippling tax bill when land passes between generations.
While chatter about tweaking IHT often mounts ahead of a Budget, there has been more widespread discussion about modifying the rules in the past 12 months.
Former chancellor Philip Hammond commissioned the Office of Tax Simplification to study IHT with the first part of its review recommending the process of dealing with it be simplified.
The second and final part of its review, released in July last year, called for:
- The seven-year qualifying period for total inheritance tax exemption to be cut to five years and taper relief to be abolished
- The trading test for business property relief to be aligned with capital gains tax
- Consideration to be given to align the inheritance tax treatment of furnished holiday lets with that of income tax and capital gains tax
- Clearer guidance from HMRC as to when a valuation of a business or farm is required and, if it is, whether this needs to be a formal valuation or an estimate.
More recently, a backbench MP report by the All-Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness issued a report [PDF] calling for the current IHT rules to be scrapped and replaced with a 10% flat-rate gift tax payable both on lifetime and death transfers.
The Labour Party also commissioned a report on the topic last year, which called for an annual lifetime gifts tax on recipients of assets worth in excess of a lifetime allowance of £125,000.