Wealthy landowners are hastily transferring their estates to their children ahead of the general election, driven by fears that a Labor government may tighten inheritance tax breaks.
Concerns about potential tax bills have prompted many to speed up property transfers, said Joseph Adonis, a partner at Moore Kingston Smith and an adviser to landlords. “There is clearly concern about whether or not there is sufficient funding for Labour's plans,” he explained. “People are giving away some assets and wealth in preparation for any changes, effectively to reduce the value of properties that are likely to come within range.”
Under current rules, inheritance tax is levied at 40% on estates worth more than £325,000, rising to £500,000 if the home is left to children or grandchildren. Agricultural property relief provides relief of up to 100% of inheritance tax for those passing on farmland and farmhouses, while business property relief provides similar benefits to prevent businesses being sold or divided on the owner's death.
In 2021, Rachel Reeves, the shadow chancellor, suggested that Labor might review “every tax break” if it came to power, including those for farmers. However, shadow Defra Secretary Steve Reid confirmed last December that the party did not plan to change inheritance tax rules that prevent farms being divided on the death of a landowner. Despite this, a recent report by the Institute for Fiscal Studies (IFS) recommended scrapping some tax breaks, including agricultural and business relief, to raise £3bn for the economy. The report indicated that capping these exemptions at £500,000 per person could generate an additional £1.8 billion in tax revenue by 2029-2030.
Adunse noted that high-net-worth individuals, especially those with estates worth more than £20 million, are scrutinizing the rules closely. Gifts made during a person's lifetime are usually exempt from inheritance tax, provided they are made more than seven years before death, while transfers between spouses are always exempt.
A recent study by accountancy firm Saffery and Historic Houses revealed that more than half of owners of estates worth more than £1bn cite minimizing taxes as the main reason for succession planning. The increase in property transfers comes after a record year in inheritance tax revenues, driven by a freeze in tax thresholds and rising house values. Figures from HMRC showed that tax revenues increased by almost 14% in April this year compared to last year, bringing in £700 million.