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Potential Business Relief Changes Could Impact Entrepreneurs

Published by Prerana
Published Date: May 15, 2024

The Institute of Fiscal Studies (IFS) recently recommended removing certain Inheritance Tax reliefs, particularly in the sectors of agriculture and business, to help the economy. However, this suggestion, if imposed, can have huge side effects on the very economy they seek to support.

What Are the Proposed Reforms?

According to a research paper published by IFS, the business relief for large business owners should be capped at £500,000 per person. Also, they should be subjected to a tax rate of 40% Inheritance Tax on assets exceeding this threshold.

This potential abolishment of inheritance relief in agricultural and business sectors aims to increase tax revenue. If implemented, the tax revenue can increase by £1.4bn in the current tax year and rise to £1.8bn in the Tax Year 2029/30. But there are concerns about the broader economic impact of these reforms.

How Will These Reforms Affect Business Owners?

The proposed cap could have a significant impact on large businesses and their owners due to substantial tax liabilities and the illiquid nature of their assets. Also, with the higher societal benefit of investments gone, people will be less likely to make large investments. This may lead to business closures and asset selloffs, which can destroy the economy.

Inheritance tax changes

One business, however, that can benefit from this reform is insurance. Businesses can opt for insurance policies that could potentially help in business continuity and succession planning. Other than that, many family businesses and other businesses have already made commercial decisions and are transferring shares due to fear of the potential Inheritance Tax change. This will affect the long-term economic condition of the country.

Conclusion

So, the Institute of Fiscal Studies (IFS) has recently published a paper on the abolition of Inheritance Tax relief, particularly focusing on the agricultural and business sectors. Although the aim of removing these reliefs is to increase tax revenue, this could have a long-term and serious impact on the economy. The potential changes have already started causing distress among family and large business owners, which can impact the economic condition of the country.

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