Changes surrounding Business Property Relief (BPR) announced in the Autumn Budget are likely to have significant implications for the future of private and family-owned construction businesses.
What is BPR?
Established in 1976, BPR provides 100% relief from Inheritance Tax (‘IHT’) on the transfer of qualifying businesses, enabling them to be passed from one generation to the next free of IHT.
The main policy reason for BPR has been to reduce the risk of businesses having to be broken up or sold in a succession situation because of the IHT that would otherwise apply.
BPR capped from April 2026
Following the Autumn budget, from April 2026 the first £1m of BPR assets will be IHT free. For all qualifying BPR assets over £1m, IHT will apply with 50% relief, at an effective IHT rate of 20%.
Reaction from the construction sector
Many in the sector have warned that the IHT changes greatly reduce the incentive to set up and run a family enterprise which that could jeopardise the government’s plans to build 1.5 million new homes, plus new hospitals and schools.
The Builders Merchants Federation (BMF) is just one of a collection of organisations which has warned the government that the planned IHT changes will hit the sector hard.
In an open letter to the Prime Minister, John Newcomb, CEO of the BMF, explained that the majority of their members are family-owned, small local independents, who want to pass their businesses onto the next generation to continue to serve their customers and local communities.
He goes on to say that “Construction is absolutely critical to the lifeblood of the UK economy, but we are hearing across the industry that the changes in IHT could limit the future of the sector, with many private and family businesses reporting that the impact of Business Property Relief will damage enterprise.”
Our thoughts
Family businesses with cash reserves will no doubt be looking at these rules carefully. Should they invest, for example in new plant and machinery or in taking on apprentices, or do they need to keep the money available for a future IHT bill.
The changes will also have a significant impact on businesses where there is an unexpected death of a shareholder/director. Contrary to the aims behind BPR, there will be a greater risk of businesses having to be sold or liquidated after the business owner’s death to fund the IHT liabilities that will arise.
The new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026. This prevents forestalling. For example, a lifetime gift of unquoted shares of £2 million made on or after 30 October 2024 will be a failed potentially exempt transfer if the donor dies within 7 years. 100% relief would apply to the first £1 million and 50% to the next £1 million under the new rules if the recipient owned the shares until the donor’s death and the donor’s death is on or after 6 April 2026.
Planning for this uncertainty should now be a priority if businesses are to avoid a fire sale at the worst possible time.
Get in touch
If you need advice about succession planning to ensure your family business and wealth can be passed down to future generations in the most tax efficient way, please get in touch with our expert inheritance tax team who will be able to support you during this period. Get in touch via our website, or contact our tax partner James Greenhalgh at james.greenhalgh@cowgills.co.uk.
