According to tax efficient investment firm Radius Equity, the value of business property relief claimed by investors in small business has increased 5% on the £540m saved in 2013/14 and is up 46% on the £385m acquired in 2012/13.
Gary Robins, director at Radius Equity, said the increased take-up of the tax relief – which allows those who have inherited shares in unlisted businesses to exclude the value of these assets from the IHT bill for an estate – emphasises the growing investor appetite for small enterprises.
However, he added that expectation that HM Revenue & Customs will still collect more than £3.5bn in IHT in 2017/18 despite the Budget announcement that property worth up to £1m can now be inherited free of tax emphasises the scope for further savings.
“The large increase in the amount of Inheritance Tax collected by HMRC shows that there is still more capacity for more investors to take advantage of the generous reliefs on offer,” he said.
“These reliefs not only minimise investors’ IHT bills, but they also unlock a wider range of funding opportunities for small business – vital for their growth as many still find it difficult to secure lending from banks.”
In 2014/15, HMRC collected £3.8bn in IHT receipts, up 23% from £3.1bn in the previous year.
Last month, HMRC proposed strengthening the ‘hallmarks’ it uses to identify inheritance tax planning arrangements, but excluding certain types of trusts used alongside life assurance policies.
Under draft legislation, a scheme will fall under the disclosure of tax avoidance schemes regime if its main purpose is to obtain an IHT advantage and if it is ‘contrived, abnormal, or unlikely to have been made if there were no tax advantage’.
However, the legislation specifically exempts Discounted Gift Trusts used with a life assurance policy as well as Loan Trusts, as they are accepted by HMRC as non-aggressive planning opportunities.
Business property relief explained
Business property relief allows invests to benefit from a £100% inheritance tax relief on the value of unlisted shares after two years, provided the investments are still held at the time of death.
The relief is available on almost all investments which qualify for Enterprise Investment Scheme (EIS) tax reliefs – a Government scheme designed to help smaller higher-risk trading companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
Investors in EIS can enjoy an upfront 30% income tax rebate on money they contribute to the scheme, as well as an exemption from paying capital gains tax on an investment if they hold it for at least three years.
Graph showingthe amount of business property relief claimed by investors in SMEs has increased by 47% over three years