The same can be said about reliefs applying to agricultural holdings. Although stopping the relief would mean the government increases the amount of IHT brought in, arguably it loses out on a lot more revenue overall; for example, taxpaying employees suddenly require state assistance due to job loss and stop paying income tax.
Equally, a business forced to close is a business that no longer contributes to corporation tax or value added tax receipts, not to mention stimulating the economy through consumer spending.
Another tax break for the wealthy?
Business asset disposal relief could also be under threat. This can reduce a business owner’s capital gains tax rate from the standard 20 per cent down to 10 per cent when they sell their business. While some view this as another tax break for the wealthy, this relief is important to encourage entrepreneurship.
Starting, operating and growing a business comes with commercial and financial risk. Tax incentives at all stages of the business journey should surely be maintained so that some of that risk is both hedged and rewarded. Successful business owners do not just make money for themselves of course, they create jobs and make a wider economic contribution.
Instead of slashing reliefs, there might even be an argument for the government expanding some of them. While many different types of businesses enjoy IHT exemption, some have fallen through the cracks, such as businesses focused on owning and letting property. Some of these businesses are full-time jobs for the owners but they do not qualify for IHT relief.
In fact, they suffer more penal taxes than most other businesses. Without IHT relief, it could mean that a beneficiary is forced to sell the properties just to pay their tax bill, putting the tenants at risk of eviction.
Hopefully, the new government takes a sensible approach to tax reliefs and does not overemphasise the tax-avoidance rhetoric. Short-sighted decisions may increase tax receipts in one area or in the short term.
However, there could be wider and more far-reaching consequences making the country far less rich in the long term, both financially and in terms of its cultural and economic life.
Julia Rosenbloom is a tax partner at Shakespeare Martineau
