By Claire West
Following submissions by the Federation of Small Businesses and the Business Retail Consortium to the Chancellor ahead of this month's budget, today the Institute for Family Business (IFB), which represents the interests of the UK's 3 million family businesses, added its voice to calls for a budget that maintains stability and encourages growth in small businesses.
At the heart of the IFB's recommendations in the Pre-Budget Submission are five basic points on taxation around issues of Business Property Relief (BPR), Business Asset, Holdover Relief (BAHR), Capital Gains Tax, the Enterprise Investment Scheme and Corporation Tax.
IFB Director General, Grant Gordon, said: “The IFB believes that there will be a noticeable improvement in the ability of the family business sector to grow and plan for the future if these tax changes we recommend are adopted by the Chancellor.
“These changes will help family firms manage succession and gain better access to finance, this will in turn support investment, improve long-term stability and lead to more growth.”
IFB Chairman, Ross Warburton, said: “If the Chancellor removes the uncertainty and complexity that we have identified in the taxation system this will benefit family businesses and the UK economy as a whole.”
The five taxation points are:
1. Business Property Relief (BPR) — This is a crucial relief from inheritance tax and is vital for succession planning and must be maintained in full as it encourages family firms to invest for the long-term and ensure ownership stability. The IFB would also like to see legislative changes to reduce the impact of holding and control tests on BPR to unlock additional investment in joint ventures, important for international growth.
2. Business Asset Holdover Relief (BAHR) — This is another crucial tax relief for family businesses, but confusingly different tests apply for BAHR and BPR. The qualifying tests for the two reliefs interact poorly so that one restricts the use of the other reducing their impact. This uncertainty damages family firm’s confidence in investing in some situations.
3. Capital Gains Tax — The IFB wants to see the requirement to work in the business to benefit from Entrepreneurial Relief for CGT removed. Family investors who are taking a financial risk are not always the same as managers and this rule discourages investment in family firms.
4. Enterprise Investment Scheme — Allow family members relief on EIS investments through a “commerciality test”. Family businesses have a track record of investing into new business ventures and a key incentive for investment into early stage business is EIS, but its rules discriminate against businesses that are looking to raise capital from relatives. The EIS has an inherent presumption that investment by family members is not at arm’s length.
5. Corporation Tax — The IFB welcomes the lower corporation tax rate and calls for further reductions as this will encourage firms to maintain healthy balance sheets and boost long-term investment for growth.