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Owners of some of Britain’s largest and most valuable estates have accelerated the transfer of properties to their heirs amid fears that inheritance taxes could be tightened under a Labor government, advisers said.
Inheritance tax is charged at 40 percent on the value of an individual’s estate at death, above a tax-free exemption of £325,000, but various exemptions can legitimately be used to reduce liability.
Rachel Reeves, shadow chancellor, said several years ago that the Labor Party would look at “every tax break” on offer in Britain if the party were elected at the general election. However, Labor has since ruled out the abolition of inheritance tax on farmland.
This has not stopped some owners of estates and historic houses from taking preventative measures – even before the July 4 general election, for which Labor is strongly in the polls.
Peter Harker, partner at accountancy firm Saffery and a specialist in advising clients with estates, said some had felt the need to act more quickly on their existing intentions to pass on wealth to their heirs.
“We are seeing some customers accelerate lifetime donations due to fear of a new administration. There is proactive movement,” he said. “There is a fear among many landowners that the exemption for agricultural land could be limited and that is pushing people to do something.”
Agricultural land waiver provides up to 100 percent relief in passing on agricultural land and farms. The aim is to prevent the break-up or sale of farms upon death.
Another relief that is often available for land ownership is the commercial property exemption. It offers up to 100 percent tax relief and aims to prevent companies from being sold or split up upon death.
Giving away assets during the owner’s lifetime can also result in a lower estate tax bill if the donor survives for at least seven years after the donation.
Joseph Adunse, a partner at Moore Kingston Smith and an adviser to landowners, said he had seen an increase in clients accelerating lifetime donations due to concerns that exemptions would be limited.
“We see more and more possessions being given away. They would have that intention anyway – that their wealth would be passed on to the next generation – but in situations like this, with elections approaching, people accelerate those plans,” he said.
Adunse added that he expected a future Labor government to focus on inheritance tax relief, especially as influential think tank the Institute for Fiscal Studies published a report last month criticizing existing rules.
The IFS report recommended several changes. These include limiting exemptions for agricultural and commercial property to £500,000 per person, which they say would make the rules fairer and raise an additional £1.8 billion in tax by 2029-30.
Analyzing whether aid could be better targeted was often the “first area of attack” for new governments, Adunse added.
Inheritance taxes have risen in recent years as a result of rising asset values and the government’s multi-year freeze on inheritance taxes.
According to the latest annual statistics from HM Revenue & Customs, Britons owed a record £5.76 billion in inheritance tax in 2020-21.
Monthly figures published by HMRC on Wednesday estimated that inheritance tax revenues would reach £700 million in April, £85 million higher than in April of the previous tax year.
A survey of historic homes and estates released this week by Saffery and Historic Houses, a cooperative of independent historic houses, found that 56 percent consider minimizing inheritance taxes to be the main goal of estate planning.
The survey respondents represented estates with a combined value of more than £1 billion and almost 250,000 hectares of land. This land consisted of residential properties, which 82 percent of respondents owned; agricultural land, which owned 78 percent; or a historic home, owned by 62 percent.
Despite tax minimization being an important consideration for most respondents, 42 percent of respondents did not have a succession plan in place. Advisers said this lack of planning exposed some owners to risks such as family conflict and the breakup of assets.
Meanwhile, almost a third of respondents were unaware of a special tax credit available to owners of properties of historic, architectural, artistic or scientific significance, called the conditional tax incentive scheme.
This offers up to 100 percent exemption from inheritance tax on the relevant assets, provided the owner meets various conditions, such as managing the asset and opening it to the public.