I recently spent a few days in Scotland (yes, I know: impeccable timing). Driving up, I stopped off, of course, at a couple of motorway service areas. I couldn’t tell you where they were, which corporate group owned them or whether the paper coffee cup was emblazoned with a yellow M, a green mermaid or a cheery colonel. I doubt if the young people employed to minister to the needs of the weary traveller cared much either.
Over the border I stayed for a night in an hotel in Glasgow. Or it might have been Edinburgh. Or anywhere else that particular corporate brand or any of its clones had set up shop; it’s difficult to tell one bedroom or dining room from another. Hard by was a shopping mall indistinguishable from any other up and down the length of the country.
Happily, this was not the limit of my exposure to the hospitality industry. My journey northward also saw me stop off at one of the few independently-run service areas on the motorway network, where I enjoyed (I use the word advisedly) a very different experience; and I subsequently spent time in a family-owned country hotel in the Highlands.
All of these businesses will have been similarly affected by the Budget changes to NICs. But they will be very differently affected by the IHT changes.
While many pressures may trouble the board of McChickenBucks, having to plan to hand over 20% of the capital value of the business in tax every 30 years or so isn’t one of them. Family-owned businesses competing in the same market-place aren’t so lucky.
Much airtime and newsprint has been devoted to the plight of farmers as the paradigm case of asset-rich cash-poor businesses, but farmers are not alone in fearing the threat to their ability to pass a family business down the generations. In how many cases, one wonders, will the consequence of the IHT changes be to push executors and beneficiaries towards unlooked-for sales of assets or entire businesses? And who will buy such businesses? One wonders whether a tax policy which in the longer term drives small independent private businesses either into closure or into the hands of large corporations is really a desirable one.
It may fairly be said that with sound advance planning much of the adverse effect of the IHT changes can be mitigated: for example, lifetime giving with CGT holdover relief coupled with term life cover may offer a way forward.
But – and here’s the point – advance planning requires time, and never more so than in the case of IHT (and pensions, come to that: another topic for another time). Historically, best advice to the owner of a generational family business has often been to retain ownership until death, secure that BPR will take care of IHT, with the incidental benefit of CGT rebasing on death. Indeed, a quick virtual visit to Companies House revealed that that appears to have been exactly the strategy adopted in the case of my Highland retreat. However, October’s Budget changes leave such owners with a dilemma – one which is particularly acute if they are already of advanced years. Should they gift the business now, holding over the gain and sacrificing CGT rebasing, but with the risk that the seven-year rule may make little or no difference to the IHT payable on death? Or is it wiser to take the pragmatic view that death is likely to precipitate a sale of the business anyway, and hold on for the CGT rebasing?
It’s not a choice that will be emotionally easy to make for an owner who may well have inherited the business and, until a month ago, confidently expected to pass it on to the next generation.
I recently spent a few days in Scotland (yes, I know: impeccable timing). Driving up, I stopped off, of course, at a couple of motorway service areas. I couldn’t tell you where they were, which corporate group owned them or whether the paper coffee cup was emblazoned with a yellow M, a green mermaid or a cheery colonel. I doubt if the young people employed to minister to the needs of the weary traveller cared much either.
Over the border I stayed for a night in an hotel in Glasgow. Or it might have been Edinburgh. Or anywhere else that particular corporate brand or any of its clones had set up shop; it’s difficult to tell one bedroom or dining room from another. Hard by was a shopping mall indistinguishable from any other up and down the length of the country.
Happily, this was not the limit of my exposure to the hospitality industry. My journey northward also saw me stop off at one of the few independently-run service areas on the motorway network, where I enjoyed (I use the word advisedly) a very different experience; and I subsequently spent time in a family-owned country hotel in the Highlands.
All of these businesses will have been similarly affected by the Budget changes to NICs. But they will be very differently affected by the IHT changes.
While many pressures may trouble the board of McChickenBucks, having to plan to hand over 20% of the capital value of the business in tax every 30 years or so isn’t one of them. Family-owned businesses competing in the same market-place aren’t so lucky.
Much airtime and newsprint has been devoted to the plight of farmers as the paradigm case of asset-rich cash-poor businesses, but farmers are not alone in fearing the threat to their ability to pass a family business down the generations. In how many cases, one wonders, will the consequence of the IHT changes be to push executors and beneficiaries towards unlooked-for sales of assets or entire businesses? And who will buy such businesses? One wonders whether a tax policy which in the longer term drives small independent private businesses either into closure or into the hands of large corporations is really a desirable one.
It may fairly be said that with sound advance planning much of the adverse effect of the IHT changes can be mitigated: for example, lifetime giving with CGT holdover relief coupled with term life cover may offer a way forward.
But – and here’s the point – advance planning requires time, and never more so than in the case of IHT (and pensions, come to that: another topic for another time). Historically, best advice to the owner of a generational family business has often been to retain ownership until death, secure that BPR will take care of IHT, with the incidental benefit of CGT rebasing on death. Indeed, a quick virtual visit to Companies House revealed that that appears to have been exactly the strategy adopted in the case of my Highland retreat. However, October’s Budget changes leave such owners with a dilemma – one which is particularly acute if they are already of advanced years. Should they gift the business now, holding over the gain and sacrificing CGT rebasing, but with the risk that the seven-year rule may make little or no difference to the IHT payable on death? Or is it wiser to take the pragmatic view that death is likely to precipitate a sale of the business anyway, and hold on for the CGT rebasing?
It’s not a choice that will be emotionally easy to make for an owner who may well have inherited the business and, until a month ago, confidently expected to pass it on to the next generation.
