The latest provisions in the Finance Bill designed to tackle abuses of Business Property Relief (BPR) and Agricultural Property Relief (APR) have been amended, following concerns raised during consultation about the potential impact on the rural sector.
The proposals restrict relief on debts in certain circumstances when a liability for inheritance tax (IHT) arises. They apply where an estate includes both assets that qualify for BPR or APR and a borrowing that was used to fund their acquisition. Under the new rules, it will no longer be possible to claim relief on an asset that qualifies for BPR or APR which was bought with borrowed funds.
Mike Harrison, partner in Saffery Champness' Landed Estates said: 'Before this change, debts could generally be matched with the asset on which they were secured. So, for example, funds borrowed could be secured on let cottages and then used to finance the family farming business. The debt would reduce the value of the let cottages for IHT purposes, whilst the farming business would secure APR and possibly BPR also, taking it out of the charge to IHT.'
The government said the changes were designed 'to remove the tax advantage that is achieved by arrangements which exploit the current provisions'.
However, the ATT and CIOT, amongst others, raised concerns that this approach was too broad and called for a targeted approach to addressing abuse of BPR and APR.
The revision contained in the latest amendment excludes pre-existing liability created before 6 April 2013 from the provisions.
Yvette Nunn, president of the ATT, welcomed the amendment as 'encouraging news', but said she still had concerns over the way the regulations were framed.
'It is wrong to assume, as it appears HMRC has, that all loans used to buy relievable assets are part of some tax-planning arrangement. There is a continuing perception that borrowing gives rise to additional relief; that simply is not the case. Because of the limited nature of the amendment, such liabilities incurred after 5 April 2013 will have the effect of restricting the benefit of BPR and APR. This may discourage the very investment in UK businesses that the economy so urgently needs,' Nunn said.
Nunn also pointed out that that the exemption for pre-April 2013 borrowings will not apply if the loan terms are subsequently amended. She said there could also be a problem if a borrowing is used to fund the purchase of an asset that only partially qualifies for BPR or APR, saying that the whole loan would then be disproportionately set against the value of the relievable part.
