Budget likely to put IHT under taxmans scrutiny

12 February 1999

Budget likely to put IHT under taxmans scrutiny

By Suzie Horne

INHERITANCE tax relief is one of the most likely targets in next months Budget since only one in 45 estates attract IHT liability, according to recent estimates.

But quite how the government will increase that proportion remains unclear, says Martyn Crawley, senior partner of Kent-based accountant Chavereys.

"We assume it was not tackled last time because of the problem of drafting time." This year, it is possible that a working farmer test may be brought back to ensure that those who run farm businesses are treated more generously than those who own land but do not farm it themselves, he suggests.

This is not a new idea, but it does have problems. As well as catching the larger non-farming landowners, it could affect small farmers looking to diversify and earn money away from the farm.

An area or turnover limit could help. "This would be a form of modulation, with perhaps 100% relief up to a certain level and reduced thereafter," says Mr Crawley. "The flat 40% rate also seems unfair so we might see staged tax rates." The ability to pay the tax over a 10 year period is likely to stay.

Under the current regime, business property relief and agricultural property relief potentially offer 100% relief. APR is slightly more generous than BPR, so agricultural property could lose this favoured status, says Mr Crawley.

Minority interests in businesses could also be treated less favourably, perhaps along the lines of an earlier regime which allowed relief only where an interest represented at least a 25% share. But a rule like that could cause problems for family farms which may have several joint owners, he points out.

The next six weeks may be the last chance to pass on assets with significant value without attracting IHT. Some people may feel pressurised by this time constraint, but they should be cautious and only act when the family, practical and commercial considerations dictate that they should do so, says Mr Crawley.

Be certain that assets end up in the right hands. Even trusts will not always overcome this because families change and develop.

"You need to have a fairly good idea of the way a farm or business will pan out in the longer term," says Mr Crawley. "The implications of divorce are the biggest single limiting factor in passing assets down the generations." &#42

See more