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Entrepreneurs could be driven away from the UK if the Labour government “attacks business relief” on inheritance tax in the autumn budget, according to Hurst tax expert Karen Chadwick.
Her warning follows PM Sir Keir Starmer’s admission that the budget, scheduled for Wednesday 30 October, would be “painful”.
While Labour has pledged not to hike taxes on working people, such as income tax, employees’ national insurance and VAT, the government has said it will have to increase other taxes.
There is speculation that inheritance tax could be targeted, along with capital gains tax and pensions, as well as a potential stealth tax.
Chadwick, who leads the private client tax offering at Hurst, said changes to business relief on inheritance tax could damage the UK economy.
Inheritance tax is usually charged at 40%, but business owners can currently qualify for up to 100% relief against the value of their company.
Chadwick said: “It enables a business to be passed on without a penal IHT charge on death and, where appropriate, during lifetime. If this relief is removed or restricted, this could lead to an even wider pool of assets falling within the scope of IHT on death.
“This could be detrimental for UK business and growth and could drive away entrepreneurs from the UK. If company shares are valued and subject to an IHT charge on death, this is what is known as a ‘dry’ tax charge, meaning there is no liquid cash with which to pay the tax as the value is locked within the shares.”
She added: “In my opinion, this could be adverse and damaging for the UK economy, given that we rely so extensively on owner-managed businesses to create jobs, and given that jobs are essentially created by people and not by government, despite their claims.”
IHT receipts for the government are increasing dramatically, raising more than £7bn a year.
Further changes and reforms to the taxation of pensions are possible, including the potential introduction of a flat rate of pension tax relief.
Chadwick said this measure would be less generous for higher earners, and some opponents argue it could discourage saving for the future and be complex to implement.
