5 July 2013
Press ReleasesThe Government has partially reversed its unexpected attack on debt relief on inheritance tax introduced in the Finance Act in April this year.
The proposals would have seen existing and new debts being set against assets that already qualify for relief against inheritance tax, such as farmland, with the result being that no relief would be available.
Stephen Barratt, Private Client Tax Director at James Cowper Kreston said: “The Government’s main intention with this legislation was to target those tax-planning schemes based on business and agricultural property and other IHT reliefs. It had not fully realised how this would affect rural families and their businesses where it is quite normal to borrow against non-farming assets.”
Stephen continues: “The U-turn was announced last week (24 June) following concerns raised by the rural community that the effective removal of debt relief for inheritance tax will unfairly target farming families and estate owners who often borrow against property or land to raise money to invest back into the business. This would have had a retrospective effect on IHT relief on loans previously taken out as part of a purely commercial decision arising from the demands of the business.”
It is not, however, all good news. Whilst borrowing pre 6 April 2013 will be excluded from the regulations, the relief will be lost for all subsequent borrowing where money is borrowed against non-business assets to invest in assets qualifying for IHT relief.
Stephen said: “Whilst this will protect relief for existing debts at 5 April 2013, future borrowings will be affected. Care will also be required where existing borrowing is restructured or replaced after 5 April 2013.
“The detail of the fine print will be critical to this. On the face of it, it seems that the U-turn might not really be based on principle but more on the practicalities of policing the IHT position on historic debts, the purpose for which have become lost in the mists of time.”
Stephen concludes: "Consultations are held for a very good reason – to ensure that government has its legislation right. If it had held a consultation it would have saved itself time and money and, more importantly, not added to the existing considerable stress suffered by farming and rural families.”
Stephen Barratt, Director, James Cowper Kreston LLP, Tel +44 (0)1635 35255 or email
