The upcoming Budget should be treated as an opportunity to make it easier for entrepreneurs to pass businesses to the next generation, says Julia Rosenbloom, private client tax partner at professional and financial services group Smith & Williamson. Here’s why.
Transferring assets to the next generation while a business owner is still alive can help ensure the organisation’s long-term success. This is good for British SMEs and protecting jobs. But according to tax expert Julia Rosenbloom, most business owners ignore this looming issue, partly because tax reliefs and support systems aren’t clearly defined. “I have experience of business owners being put off from this given how some reliefs are organised. I would therefore call on the Chancellor to address this situation in the upcoming Budget,” she says.
Give property businesses same reliefs as other businesses
“It seems unfair that owners of traditional businesses enjoy various incentives, such as inheritance tax relief, from which property businesses are excluded. I have clients who manage large property portfolios as a full-time job plus employment and income can be created for teams of local people,” she adds.
“Property entrepreneurs should therefore be encouraged to grow successful businesses during their lifetimes that can be passed efficiently to successive generations.”
To ensure that the system is not misused by property investors, a statutory definition for property businesses could be introduced, such as one that refers to scale or the level of activity required.
Allow greater opportunity to make lifetime gifts while maintaining control
For Rosenbloom, entrepreneurs often want to retain control and so are advised to set up a trust but this can mean they face inheritance tax charges where full reliefs are unavailable. “I would like the upcoming Budget to give business owners greater opportunities to transfer assets into trusts.”
Make it easier to make gifts without crystallising CGT
Gifts are generally treated as though they are sales for CGT (capital gains tax) purposes even though there are no sale proceeds. This can lead to a CGT charge which puts people off gifting during their lifetime.
“Deferral reliefs (so that CGT is only payable on an actual sale) are available but they don’t apply to all assets or in all situations,” says Rosenbloom. “These reliefs should be extended to wider classes of assets to make it easier to move things down to the next generation.”
Change SDLT rules for gifting property portfolios
Where debt is secured on property and it is transferred subject to that (which is generally the case unless the debt can be paid off), you currently get a Stamp Duty Land Tax (SDLT) charge. “To facilitate the passage of property to the next generation, the rules should be changed so that no SDLT is chargeable in such circumstances.”
What’s on your Budget wish list this year? Have you thought about life after your business?
Sign up to our newsletter to get the latest from Business Advice.