Family business body pleads for stable tax regime
A GROUP representing businesses with combined turnover of £100billion has issued an urgent plea to the Chancellor to put a stop to shortterm tinkering that it says hinders members’ plans for the future.
In a submission sent to Philip Hammond and seen by the The Mail on Sunday, the Institute for Family Business, whose members employ half a million people, said: ‘It is essential the tax environment remains stable, giving them confidence to plan for the future’.
The Institute urged the Chancellor to use Wednesday’s Autumn Statement to support long-termism in business.
There are an estimated 4.7million family-owned businesses in the UK, providing 12.2million jobs while generating a quarter of UK GDP and £125billion in tax. The IFB’s submission seeks policy pledges including supporting smooth transition of ownership of businesses between generations and asserting a commitment to business property relief from inheritance tax in full.
The IFB estimates that 85,000 small and medium-sized enterprises transfer ownership to a new generation each year. It said the business relief was ‘crucial’ to family businesses wanting to ensure management and ownership was passed on.
It said: ‘Without Business Property Relief, each time ownership of a business passed from one generation to another an inheritance tax liability would be created.’
The body also called for the Treasury to consult on introducing a single qualifying test to apply equally for gift hold-over relief and BPR, in line with the current BPR test.
It said: ‘Hold-over relief and BPR both protect family firms from the danger of having to sell a business to pay a tax bill, such as capital gains or inheritance tax, when no cash disposal is intended or planned. However, to qualify for these reliefs firms must pass different “trading” tests, creating confusion and difficulties for family businesses. The different tests for hold-over relief and BPR restrict the use of these reliefs and their potential benefit.’
For example, it said ‘the greater burden’ of trading criteria for holdover relief meant ‘gifts of shares are not made according to a family business succession plan but are made for tax reasons’.
The IFB has recommended the Chancellor review the tax treatment of trusts ‘so that sensible succession planning can take place over extended periods’; extend the Enterprise Investment Scheme threshold to support the growth in mid-sized businesses; support sustainable business financing by equalising the tax treatment of debt and equity financing; ensure pension deficit calculations are appropriate to family firms; and unlock investment in start-ups by removing the ‘connected persons’ test’ for EIS.
It said: ‘The connected persons’ test results in an active disincentive for otherwise non-connected family members to invest in start-ups with a family association. Family businesses are excellent incubators of entrepreneurial talent – with an estimate that 13 per cent of family businesses start as spin-offs from an existing family firm.
‘In our view, investment by a family business owner in another family enterprise should attract the same relief as an investment by a family business owner in an enterprise outside the family.’
IFB executive director Elizabeth Bagger, said: ‘When the Chancellor delivers his first Autumn Statement family businesses are looking for policies which support the building of thriving enterprises for generations to come. As linchpins of our economy, the Government’s agenda should include more initiatives to support growth.’