Fifty of the UK’s wealthiest families shared more than half of a £595m inheritance tax break for business owners, new figures have revealed.
The estates, which all had business property wealth exceeding £5m, benefited from a concession called business property relief (BPR). It has been part of the UK tax system since 1976 and provides up to 100 per cent inheritance tax (IHT) relief on the transfer of business assets.
BPR applies to shares in unlisted companies or to people who control more than 50 per cent of a company’s voting rights.
Tax Justice, a not-for-profit campaign group, uncovered the families’ dominance of the relief using Freedom of Information requests and official data. Its research revealed £595m was given away by the government in BPR in the 2015/16 tax year, the most recent for which data are available.
Of this, 234 estates with business assets of more than £1m claimed £458m, representing 77 per cent of the total relief. The biggest 51 estates accounted for £327m.
A similar picture was found for agricultural property relief (APR). This also provides up to 100 per cent IHT relief when passing on farmland and farmhouses.
Robert Palmer, director of Tax Justice UK, said the annual cost of the tax breaks could pay for about 25,000 National Health Service nurses.
“Wealth inequality is at staggeringly high levels and this report shows how it is in part underpinned by IHT reliefs,” he said. “There is no justification for politicians allowing costly tax breaks to continue to operate this way.”
In 2015/16, £335m was distributed by the government in APR. Of this, £208m was claimed by 261 estates with agricultural property assets worth more than £1m, 62 per cent of the total relief. Meanwhile, 62 estates, with agricultural property worth more than £2.5m, consumed £107m of the total allocated.
The reliefs can be used to reduce an estate’s IHT bill. Estates worth more than £325,000 face a 40 per cent IHT charge on the portion of the assets above that threshold. But the need to pay IHT can be completely eradicated in cases where the bulk of an estate is made up of assets that qualify for APR or BPR.
Mike Hayes, partner at Kingston Smith, another accountancy firm, agreed with the report’s finding that farmland prices had been driven up by investors attracted by APR. But he said trying to change the tax system to distinguish between genuine farming families and investors would be tricky and risked “damaging legitimate businesses”.
“There is a danger in seeing these stats in one light and out of context,” added Rachael Griffin, tax and financial planning expert at Quilter, a financial services company. “We don’t know how much the families paid overall in [other taxes].”
The report called for a review of IHT reliefs and a cap on the relief available to estates worth more than £1m. It also recommended an end to BPR relief available to Alternative Investment Market (Aim) shares that can be held in a tax-free individual savings account.
John McDonnell, the shadow chancellor, said: “This report lays bare the extent to which the Tories’ IHT regime favours a wealthy few families.
“Labour will tackle the scourge of tax avoidance and review tax reliefs to make sure the rich pay their fair share towards the public services we all need,” he said.
However, James Hender, partner at accountancy Saffery Champness, disagreed with the suggestion that wealthy people were abusing the reliefs.
He said: “Without such reliefs, the asset in question might have to be sold by the family so that the IHT bill could be funded, with the unintended consequence that large companies could end up owning an ever-greater share of the farms and businesses concerned.”
