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Soapbox: Inheritance conundrum

This new Inheritance Tax threshold affects any private, family-owned business in the UK if the assets are over £1m. And when you are trying to move the business on to the next generation, the problem we all have is that they are taxing an asset. We don’t have the money to pay the tax because that asset is not cash – we’ve put all the money back into the business and we’ve always done that for the last 45 years. We don’t do mega-yachts and all of that, but we do employ 600 people across the Lanchester Group.

Let’s take an easy, round number and say the business is worth £100m. When the business passes to the next generation, there will be a liability of almost £20m in tax to pay, which is expected within six months. The government will give you 10 years to pay, but then it’s put 8.25% interest on that, so you are probably paying £40m over that time. That would mean for 10 years the next generation is just working for the government.

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This is going to stifle businesses being passed from generation to generation. This is a tax purely to keep running the business. People seemed to think it was just for farmers, but now businesses are starting to realise it affects all private and family-owned businesses and that realisation is gaining momentum.

What’s so short-sighted about this government is that it just doesn’t understand business. Almost no business sits on mountains of cash, so the big issue is that to pay the tax you’ll have to sell some of your assets. Then, of course, you’ll be double taxed, because you’ll also be taxed on the proceeds of the sale. And we’ve already been hit by the NIC rises, by duty rises, and these are huge figures, not small amounts.

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Panic sale

Our problem at the moment is deciding the best thing to do. We know we have to organise ourselves and get a plan in place now, but if the unexpected happens, what the government is saying is that it will take the value of the estate the day before the owner’s death. Then, in leaving the estate to the next generation, there might have to be a panic sale of part of the estate, so the next generation wouldn’t get its true value either. It’s really left us stuck – what do we do now and what do we leave for the future?

There is the seven-year rule (although there is talk of extending that to 10 years), whereby if you pass the estate on and outlive that gift by seven years you pay no tax, but what is the difference between gifting something seven years in advance and just leaving it when you pass away? Why would you even have that rule?

There are a lot of other people in family businesses who feel the same way. And, if they can’t pay the taxes, or have to sell parts of their business to pay, those businesses will either go down or be reduced in size, so there will be fewer people on the payroll and those extra taxes will have to go towards paying people unemployment benefit.

Another major concern is the proposed changes to pension taxation. As things stand, if someone dies aged 75 or over, pension benefits paid to beneficiaries are subject to income tax at their marginal rate (up to 45%). From April 2027, however, unused pension funds will also be subject to Inheritance Tax (currently 40%), potentially resulting in a combined effective tax burden of up to 67% – a significant blow for family businesses that have reinvested pension savings into their own property.

The other impact nobody’s really talking about is that this is really stifling growth, because everyone is very nervous, the whole economy is nervous, because of what is coming, the instability of it all. Nobody is making decisions about investing in their businesses. And if the profit you are making is going to the government, then there’s nothing left to invest back into the business, so the business will slowly start to die. It’s an awful situation.

We’re in north west County Durham and we’re the largest employer in the area, by some distance. Our wage bill is £22m a year and if that was taken out of the local economy, if the business failed, it would be devastating. We’re now trying to drive growth in the business just to pay all these taxes, but what the government is doing is stopping growth. The last government already drove down growth in wine with a 20% increase in taxes, and it now just feels like one thing after another.

Family Business UK has said this change to Inheritance Tax could cause a fiscal loss to the government of £1.9bn, but it isn’t being listened to. These simply seem like very vindictive taxes.

• Lanchester Wines
• Business
• Soapbox
• Caroline Cleary
• inheritance tax