It is a great time to be a rich kid in Britain, according to the advisers, lawyers and accountants of wealthy families.<\/p>\n
While rumours of a wealth tax swirl in Westminster, and with tougher inheritance tax (IHT) rules looming in the new tax year, wealthy parents are starting to give away their assets and sign over parts of their businesses to their children \u2013 in some cases, decades sooner than they had planned.<\/p>\n
John Spencer, the director of GPS Marine, a marine infrastructure specialist based in Rochester, Kent, is one of many entrepreneurs taking advantage of tax rules that allow wealth to be given away prior to death to reduce a possible IHT bill. Gifts made seven years before someone dies are not subject to IHT, while those given three to seven years before death are taxed on a sliding scale known as \u201ctaper relief\u201d. The rate reduces each year from 32% to 8%.<\/p>\n
It is one way of cushioning the looming loss of two major tax reliefs: business property relief (BPR) and agricultural property relief (APR). The changes prompted thousands of farmers from across the country to protest<\/a> in London.<\/p>\n Big family enterprises, which previously did not have to pay any IHT when the business was handed to the next generation, will face tax of 20% on its value above \u00a31m, starting from next April.<\/p>\n It means, without any action, that Spencer\u2019s company, which is worth around \u00a320m, could attract an inheritance tax bill of as much as \u00a34m.<\/p>\n \u201cI have split my shareholdings with my wife and we are starting to give away assets, \u00a31m each to our sons,\u201d he says.<\/p>\n Spencer, 66, says he can no longer make big investment decisions without making a provision for IHT in cash, as the tax now poses \u201can ever-present threat to the survival of the business\u201d.<\/p>\n \u201cWhen we spend, it increases the value of the business and how much we have to put away,\u201d he says. \u201cNobody wants to invest, everyone is just battening down the hatches and weathering out the storm.<\/p>\n \u201cThe really sad thing is that the losers are the guys who work for us. We have had to reduce our head count by 30%.\u201d<\/p>\n When Rachel Reeves announced the changes in her first budget last year<\/a>, the Office for Budget Responsibility projected that it could net the Treasury \u00a3500m a year from 2027-28, and HMRC estimated that about 2,000 more estates would pay more tax after the change.<\/p>\n But very wealthy families are rearranging company ownership structures, setting up trusts and giving away assets to get around the new rules, some advisers have said.<\/p>\n When shares in a business that would have qualified for business property relief are moved into a trust, a different set of tax rules kick in. After the new \u00a31m cap for BPR takes effect in April next year, HMRC<\/a> will be able to charge up to 6% on the relevant assets above that allowance on every 10-year anniversary of the trust. For many inheritors, this will be a more attractive option than facing 20% tax.<\/p>\n Trusts set up before the changes were announced will be treated differently for IHT purposes.<\/p>\n The billionaire family who run the Glasgow-based secondhand car dealer Arnold Clark Automobiles rearranged the ownership of their business two days before Reeves\u2019s budget last year.<\/p>\n The dealership, which has 200 branches across the UK, was founded by the late Sir Arnold Clark in 1954. It is now chaired by his widow, Lady Philomena Butler Clark, and is family-owned. Last year it made a pre-tax profit of \u00a3120.7m on revenue of \u00a35.15bn.<\/p>\n Two of Clark\u2019s sons, John Clark and Adam Clark, were among the 12 shareholders who transferred their shares to 10 new shareholders, who appear to be trustees.<\/p>\n A spokesperson for Arnold Clark Automobiles said the changes to the shareholdings were part of a \u201cplanned process\u201d of succession planning over a number of years.<\/p>\n \u201cAs will no doubt be the case for most family-owned businesses, the Clark family had been engaged in discussions with their advisers regarding succession planning for Sir Arnold\u2019s children for a number of years, reflecting both the age profile of the second, and indeed third, generation of the family and the need to provide future certainty and stability to the Arnold Clark Group, which employs over 11,000 people.<\/p>\n \u201cThe changes to the shareholdings were part of that planned process.\u201d<\/p>\n Other prominent British family businesses have also made changes. Also in October last year, the owner of the Glastonbury festival, Sir Michael Eavis, 89, reportedly gave his shareholding in the company that runs the annual summer event to his daughter Emily, 46.<\/p>\n \u2018There is a lot of gifting down to the next generation\u2019<\/p>\n Charlie Sosna, the head of private wealth and tax at the law firm Mishcon de Reya, says many of his clients are starting to give away their wealth to their children but are trying to do so in a sensible manner.<\/p>\n \u201cThey have considerable wealth and they are worried about that being in the name of their children if they are not ready,\u201d he says.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. 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