7:22 am, November 5, 2024
Small and family-owned dealer groups across the UK could find themselves exposed to huge tax bills if plans to revise inheritance tax regulations are passed into law.
In last week’s Budget, Labour Chancellor Rachel Reeves outlined plans to change inheritance tax, limiting Commercial Property Relief (CPR) to the first £1m of an estate, whereas it was previously unlimited.
The move has left farmers and agricultural unions up in arms, but it also had significant ramifications for privately owned dealer groups, where the death of a majority shareholder could see their successor liable to pay inheritance tax on the entire estate, but without the funding to do so.
To fully explain what the budget means for automotive retailers, we were joined on the latest episode of the Car Dealer Podcast by tax experts Sarah Whalley and Ian McMahon, both from specialist firm Cooper Parry.
Speaking to hosts James Baggott and Jon Reay, Whalley said: ‘What the government have announced in the budget is that they will be putting a cap on CPR, so that only the first £1m of combined agricultural and business property will get 100% relief.
‘Anything over a million gets 50% relief, which basically means that you have an effective inheritance tax rate of 20% on the balance.
‘So just to put that into context, if somebody dies with shares in their estate that are worth £20m that would give them a £3.8m inheritance tax bill, which the beneficiaries of those shares have to somehow find. Where’s this cash coming from?’
The move has led to much confusion around how to apportion ownership of assets, as business owners now need to ensure they factor a succession plan into their business – something that isn’t easy to plan for as death is rarely predictable.
‘It is going to become ever more important for family business owners to start thinking about how they pass the business down the line and also to think about things like insurance and other liquid assets that are in their estate, to ensure that they’re not leaving their families with this big tax problem on their death,’ added Whalley.
A further budget fallout for family-run dealer groups is tied into pension assets, which will be liable for 40% inheritance tax from April 2026.
Several dealer groups hold their pension funds in property, meaning the impact of inheritance tax could be substantial.
Whalley added: ‘Potentially, here, we thought there could be some tightening of the rules that apply to business property relief.
‘But no, they’ve really gone for it here. I wasn’t really anticipating a full 40% inheritance tax hit on pensions.
‘I do wonder if there’s going to be a massive backlash. I think when people fully understand the impacts, it could be one of those where this £1m cap does get increased. That’s what I’m hoping – but obviously it remains to be seen.’
The Car Dealer Podcast, sponsored by Carwow, sees an industry guest join our hosts to discuss the motor trade’s biggest headlines of every week.
A full list of the stories discussed on this week’s episode can be found here.
You can listen to all episodes of the Car Dealer Podcast on Spotify, or wherever you get your podcasts.
