The Institute of Chartered Accountants in England and Wales (ICAEW) has raised concerns over the government’s proposed inheritance tax (IHT) reforms, which aim to cap reliefs at £1m ($1.33m).  

According to the professional membership organisation, these changes could disproportionately affect elderly business owners and farmers, especially those in poor health, by imposing unforeseen tax liabilities. 

The ICAEW’s response to the government consultation highlights that the proposed IHT reforms could create significant financial challenges for business owners planning to pass on their enterprises.  

The estates of these owners may face a 20% IHT liability, complicating succession plans.  

The ICAEW also argues that the £1m exemption is insufficient, potentially affecting more estates than intended. 

These reforms, marking the first significant change in over three decades, could threaten the continuity of multi-generational businesses.  

With the proposed changes, the ICAEW warned that businesses might need to be dismantled to meet tax obligations, potentially hindering economic growth and disrupting long-term planning for business owners. 

ICAEW technical manager of tax Katherine Ford said:  

“These unfair inheritance tax proposals will result in greater hardship for business owners who are elderly or in poor health, and will threaten the future of multi-generational businesses. 

“These changes would also thwart economic growth, given the detrimental impact this tax policy would have on many communities. The loss of policy certainty and stability, which has lasted for a generation, will undermine the ability of these family businesses to plan, resulting in severe consequences for UK business and the agricultural sector.  

“With certainty now gone, business owners will be left to scramble with short notice – that is no way to design policy. At £1m, the allowance is also not sufficient and could jeopardise the viability of businesses and family farms if not increased.” 

The ICAEW suggests that elderly or terminally ill owners may struggle to make lifetime gifts to avoid IHT, as they might not survive the required seven-year period for exemption.  

To address this, the ICAEW proposed a taper for gifts during the transitional period or transitional relief for active business owners and farmers over 65 years old. 

It also recommends that the £1m allowance be adjusted annually for inflation and be transferable between spouses to simplify tax planning.  

Smaller businesses, which exceed the valuation threshold but lack resources for tax planning, may face disproportionate challenges, according to the ICAEW. 

Paying the IHT over ten years could still pose practical problems, especially for shareholders in family companies relying on business property relief.  

The ICAEW warns of potential double tax charges if assets need to be sold to pay IHT, affecting business viability.  

Extending legislation around company purchase of own shares is suggested as a solution. 

The ICAEW also highlights the need for more professional valuations, which could increase financial burdens on taxpayers.  

Smaller businesses and farms near the £1m threshold may face scrutiny from HMRC valuation enquiries.  

The ICAEW urges the government to clarify the validity of valuations and adequately resource HMRC’s IHT valuation team to prevent delays in estate administration.