The role of APR and BPR in estate planning

As the dust settles following the Autumn Budget, in amongst the various documents released around the same time, HMRC published research on the use of Agricultural Property Relief (APR) and Business Property Relief (BPR), and taxpayers’ attitudes towards them. The report has generated a bit of interest with practitioners, but I think it’s also worth talking about more widely, since the research conducted was aimed at helping HMRC understand “what influences people to acquire certain assets, or what they do with the assets in their estate, and what beneficiaries do with the assets they inherit”.

In the past, there have been plenty of rumours about whether APR will always be available, particularly when it comes to relief for farmhouses. However, this report looks at both APR and BPR and seems to be concerned with the rationale for both.

Whilst the conclusions weren’t entirely surprising for those of us in the legal profession, the report did raise some interesting points which are worth noting.

• Where APR is relevant, there tends to be more of a sentimental feeling towards the asset involved. The family farm might be run by the third or fourth generation, with the next generation holding a strong sense of duty to keep it going
• A number of taxpayers were reluctant to address the issue of business succession (both farming and otherwise), and it seems that many were concerned about achieving the right balance between children who wanted to continue the family business, and those who didn’t
•  The goal of maximising APR and/or BPR wasn’t found to be specifically targeted at minimising inheritance tax (IHT), but was more to avoid having to sell business assets (and, say, break up the farm) to pay the bill
• Gifting during lifetime and benefiting charities are both popular forms of estate planning, but the report found that neither was always fully understood by beneficiaries and testators. The report also revealed that investment in business property relievable ventures (such as Alternative Investment Market (AIM) shares) as a means of future planning was not so widely accepted
• Trusts are still popular with testators and beneficiaries, as they can be used to help achieve an appropriate division of the estate; help protect assets and, in some cases, to obtain a tax advantage.

It isn’t clear what HMRC will do with this information, and how it will help shape policy. Overall, I think the conclusions and summary seem positive for both forms of relief, and appear to support the idea that APR and BPR serve a useful purpose in helping taxpayers preserve their business for future generations, rather than simply to avoid paying IHT. Hopefully, then, this will help to prevent any further attacks on both forms of relief in the near future.

One theme present throughout the research was that clients don’t always fully understand IHT and, in particular, how to qualify for and make best use of the reliefs available. If you would like to have a chat about estate planning and IHT, Roythornes’ Private Client team is on hand to help. We have a wealth of experience in dealing with both APR and BPR and would be more than happy to advise you.