By Daniel Hunter
Taxpayers are expected to reduce their Inheritance Tax bills by a record £565m this year by investing in unlisted companies, according to Radius Equity, the provider of tax efficient private equity investments.
The value of business property relief claimed by investors in small businesses has also increased considerably in the last two years, up 5% from £540m in the previous year and up by 47% from £385m in 2012-13.
Radius Equity explains that the increase in the value of tax reliefs on Inheritance Tax (IHT) bills is evidence of the increasing popularity of Government backed schemes, designed to encourage investment in small businesses, such as the Enterprise Investment Scheme (EIS).
The Government permits those who have inherited shares in unlisted businesses to exclude the value of these assets from the Inheritance Tax (IHT) bill for the estate.
Radius Equity adds that despite the changes to IHT announced in the Chancellor’s Summer Budget — where property worth up to £1m can now be inherited free of tax — it is anticipated that HMRC will still collect more than £3.5bn in IHT in 2017-18, emphasising the scope for further potential savings in IHT payments.
In 2014/15, HMRC collected £3.8bn in IHT receipts, up by 23% from £3.1bn in the previous year.
Radius Equity adds that the value of business property relief has not kept pace with the surge in IHT receipts, suggesting that there are many more families who could benefit from lower tax bills by investing in SMEs.
Gary Robins, Director at Radius Equity, explains: “The increased take-up of tax reliefs emphasises the growing investor appetite for investing in ambitious SMEs.”
“The large increase in the amount of Inheritance Tax collected by HMRC shows that there is still more capacity for more investors to take advantage of the generous reliefs on offer.”
“These reliefs not only minimise investors’ Inheritance Tax bills, they also unlock a wider range of funding opportunities for SMEs — vital for their growth as many still find it difficult to secure lending from banks.”
Business property relief allows investors to benefit from a 100% inheritance tax relief on the value of unlisted shares after two years, provided the investments are still held at the time of death. Business property relief is available on almost all investments which qualify for Enterprise Investment Scheme tax reliefs.
EIS investments offer attractive tax reliefs. Investors can enjoy an upfront 30% income tax rebate on money they invest through the EIS and an exemption from paying capital gains tax on the investment if they hold it for at least three years.