Fears on inheritance tax surface among wealthy landowners

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Owners of some of the UK’s largest and most valuable estates have fast-tracked the transfer of property to their heirs over fears that inheritance tax reliefs could be tightened under a Labour government, advisers said.

Inheritance tax is charged at 40 per cent on the value of an individual’s estate at death, above a tax-free exemption of £325,000, but various reliefs can legitimately be used to reduce the liability.

Rachel Reeves, shadow chancellor, said several years ago that the Labour party would look at “every single tax break” offered in the UK if the party were elected in the general election. However, Labour has since ruled out scrapping inheritance tax relief for farmland.

This has not stopped some owners of landed estates and historic houses taking pre-emptive action — even before the calling of a general election for July 4, ahead of which Labour is polling strongly.

Peter Harker, partner at accountancy firm Saffery and a specialist in advising clients with landed estates, said some had felt the need to act quicker on their existing intentions to pass wealth to their heirs.

“We are seeing some clients accelerating lifetime giving on the fears of a new government. There is proactive movement,” he said. “For a lot of landed estates, the fear is that agricultural property relief could be restricted and that is causing people to do something.”

Agricultural property relief provides up to 100 per cent relief when passing on farmland and farmhouses. Its aim is to prevent the break-up or sale of farms on death.

Another relief often available to landed estates is business property relief. It provides up to 100 per cent tax relief and aims to prevent businesses being sold or split up on death.

Giving away assets during the owner’s lifetime could also result in a lower inheritance tax bill if the donor lives for at least seven years after making the gift.

Joseph Adunse, partner at Moore Kingston Smith and an adviser to landed estate owners, said he had seen an increase in clients accelerating lifetime gifts due to worries the reliefs would be restricted.

“We’re seeing more assets being given away. They would have that intention anyway — for their wealth to pass down to the next generation — but in situations like this, with an election looming, people accelerate those plans,” he said.

Adunse added he expected a future Labour government to target inheritance tax reliefs, particularly as the influential think-tank the Institute for Fiscal Studies had published a report last month which criticised the existing rules.

The IFS report recommended several changes. These included capping agricultural and business property reliefs at £500,000 per person, which it said would make the rules fairer and raise £1.8bn extra tax in 2029-30.

Analysing whether reliefs could be more focused was often the “first area of attack” for incoming governments, Adunse added.

Inheritance tax receipts have climbed in recent years, due to rising asset values and the government’s multiyear freezing of the inheritance tax-free allowance.

According to HM Revenue & Customs’ latest full-year statistics, Britons owed a record £5.76bn in inheritance tax in 2020-21.

Monthly figures published by HMRC on Wednesday estimated that inheritance tax receipts would hit £700mn in April, £85mn higher than in April the previous tax year.

A survey of historic houses and landed estates released this week by Saffery and Historic Houses, a co-operative of independent historic houses, found 56 per cent viewed minimising inheritance tax as the primary aim of succession planning.

The study’s respondents represented estates with a combined value of more than £1bn and almost 250,000 acres of land. This land consisted of either residential property, which 82 per cent of respondents owned; farmland, which 78 per cent owned; or a historic house, owned by 62 per cent.

Despite tax minimisation being an important consideration for most of those surveyed, 42 per cent of respondents did not have a succession plan in place. Advisers said this lack of planning left some owners open to risks such as family disputes and assets being broken up.

Meanwhile, nearly a third of respondents were unaware of a special tax relief available to owners of assets of historical, architectural, artistic or scientific significance called the Conditional Exemption Tax Incentive Scheme.

This offers up to 100 per cent inheritance tax relief on the relevant assets provided the owner meets various conditions, such as looking after the asset and opening it to the public to view.