What does this mean in practice?
Many business owners are concerned that there will be insufficient liquidity in their estates to meet an increased IHT exposure on death. As a result, many are accelerating their plans to hand over some or all the business to the next generation.
The availability of unlimited 100% relief coupled with free uplift of asset values on death for capital gains tax (CGT) purposes has long meant a tendency for any meaningful handover of business assets to be deferred. A switch to substantive lifetime gifting, therefore, marks a distinct behavioural change.
Lifetime gifts can come at a significant CGT cost and may result in more tax to pay overall if the donor then fails to survive the requisite 7 years. Relevant considerations in this context include the following:
- CGT cost may be relieved by BADR or deferred via holdover relief where applicable.
- Accurate and up to date valuation appraisals are critical to inform decision making and support related tax reporting and BADR or holdover relief claims.
- A 7-year term assurance policy is sometimes taken out, usually written in trust, to address the IHT exposure.
Tax is not the only threat. It is important to remember that outright gifts are wholly exposed to the circumstances and choices of the recipient. This means that trust planning and other asset protection structures are still likely to have a role to play.