BR report 2018

12 13 A CAPTIVE MARKET FOR BR With growing IHT liabilities, and HM Treasury’s expectation of greater receipt values, there will no doubt be greater demand for BR qualifying assets. Les Cameron, tax expert at Prudential, said that there will be growing demand for advice: “IHT planning will continue to be a booming area of financial advice. “Government estimates show the trend of rising IHT receipts has continued. “We’ve breached £5bn for the first time and they will hit £6.5bn in 2022 and this should only increase consumers’ demand for IHT planning. “We should also remember the £3,000 gifting allowance has been frozen for over three decades.” 7 Approximately 3.9% of all deaths in 2014/15 led to an IHT charge. This figure is higher than the 3.4% of deaths which led to an IHT charge in 2013/14 or the 3.1% of deaths that led to an IHT charge in 2012/13. A grant of representation is required on a person’s death in order to access their bank accounts, if they had more than £5,000 and no spouse. One noticeable difference between estates requiring a grant of representation and those with an IHT liability is in the amount of securities held by the latter group. Estates which were liable to IHT held an average of £280,000 in securities compared to an average of £45,000 for all estates requiring a grant of representation. This shows that the proportion of securities held by estates requiring a grant of representation (15%) is half that of IHT liable estates in general (28%). This indicates that wealthier individuals are more comfortable with holding securities. Residential buildings accounted for 52% of the gross capital value of the average estate requiring a grant of representation, but for only 40% of the value of the average taxpaying estate. PROPORTION OF UK DEATHS LIABLE TO IHT (2001/02-2014/15) The average net capital value of estates in 2014/15 which were liable for IHT was around £983,000 compared to £289,000 for all estates requiring a grant of representation. COMPOSITION OF ESTATES BY TAX DUE, DEATHS IN 2014-15 NUMBER OF ESTATES OVER THE IHT THRESHOLD CLAIMING PARTICULAR RELIEFS SOURCE: HMRC £0 £0-£25,000 £25,000-£50,000 £50,000-£100,000 £100,000-£200,000 £200,000-£300,000 £300,000-£500,000 £500,000-£1m over £1m 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% SECURITIES UK RESIDENTIAL BUILDINGS CASH OTHER BUILDINGS AND LAND INSURANCE POLICIES LOANS AND OTHER ASSETS HOW MUCH BR IS BEING CLAIMED? BR claims accounted for over £2bn in the 2014/15 tax year. However, other schemes such as agricultural property relief and charity exemption are also being used by estates that exceed the nil rate band. But, by far the most costly relief to the government is the spouse exemption, at some five times more than the value of BR claims. In 2014/15, there were £1.5bn in exemptions for agricultural property relief, and £2.6bn in exemptions for charitable transfers – where 1,558 estates benefited from the reduced 36% IHT rate that is available for estates where at least 10% of the value of the estate is left to qualifying charities. Looking at estates over the IHT threshold, BR claims marginally decreased from 2,639 cases in COMPOSITION OF THE AVERAGE ESTATE REQUIIRING A GRANT OF REPRESENTATION IN 2014-15 COMPOSITION OF THE AVG TAX LIABLE ESTATE IN 2014-15 -£200,000 £0 £200,000 £400,000 £600,000 £800,000 £1,000,000 £1,200,000 SECURITIES CASH INSURANCE POLICIES UK RESIDENTIAL BUILDINGS OTHER BUILDINGS AND LAND LOANS AND OTHER ASSETS LIABILITIES SOURCE: HMRC BUSINESS PROPERTY RELIEF OTHER RELIEFS AGAINST ASSETS RELIEF ON SALE OF ASSETS AGRICULTURAL PROPERTY RELIEF SOURCE: HMRC RELIEF AND EXEMPTIONS SET AGAINST ASSETS 2010-11 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2011-12 2012-13 2013-14 2014-15 2001-02 2009-10 2005-06 2013-14 2002-03 2010-11 2006-07 2014-15 2003-04 2011-12 2007-08 2004-05 2012-13 2008-09 7% 3% 6% 2% 5% 1% 0% 4% £100,000 £50,000 -£50,000 £0 £150,000 £200,000 £250,000 £300,000 £350,000 SPOUSE EXEMPTION CHARITY EXEMPTION BUSINESS RELIEF AGRICULTURAL RELIEF RELIEF ON SALE OF ASSETS OTHER RELIEFS £4,000m £8,000m £12,000m £10,000m £6,000m £2,000m “3.9% of all deaths in 2014/15 led to an IHT charge.” 2013/14, to 2,608 cases in 2014/15. However, the amount claimed rose by nearly 15% from approximately £2bn to just under £2.3bn. 8 This is almost the same increase as the uplift in IHT receipts between those 2 years, suggesting that BR is not becoming any more expensive as a percentage of IHT collected; it is simply that as IHT receipts increase, BR claims increase at a similar level. It is also likely that other IHT reliefs available dwarf the amount of relief claimed against BR: no data exists to show how much gifting is used and the level of IHT exemption it achieves. But the raft of different gift exemptions are easy to undertake, free for individuals to do, there is good awareness of gifting as an IHT mitigation method. It is also difficult to work out the cost of trusts - a very mainstream and widespread estate planning tool - to HMT because full data is not available. It appears that the demand for BR is not increasing exponentially, despite the amount of IHT receipts increasing year on year by an average of 11% since 2009-10. This appears to indicate a continuing lack of awareness of the tax efficient scheme. In terms of BR versus charitable transfers, many people will look to give to charity in their wills, regardless of the IHT mitigation available. However, if knowledge of BR was greater, there may be an uptake of people choosing to invest in BR qualifying assets so as to support fledgling UK small businesses. Although this option is perhaps not as altruistic, there is a critical need to support SMEs, and clearly BR brings the added benefit of tax efficiency.