There are ways of avoiding the tax, using existing loopholes. The main way is to gift assets to the next generation, on condition that you live for seven years after the transfer.
Businesses seeking to limit their exposure to tax face making macabre judgements on the life expectancy of older members – or insuring against the death of younger ones, who could defy tax planning if they die young.
In many cases, like with the Grant family of distillers, the wealth is split across siblings and cousins. As assets pass to the next generation, there may be a slightly lower tax bill because of the £1m exemption per person.
But the need to raise cash could force some family members to sell a share, and a lot of that could destabilise the firm.
Ryan Scatterty is managing director of Thistle Seafoods near Peterhead, and is the fifth generation at the firm. It also has a processing unit in Uddingston, Lanarkshire, employs 800 people and has a £133m turnover.
He says the seafood sector is dominated by family firms who are in a similar position to the farmers in the north east of Scotland who are protesting about the inheritance tax proposals.
He says beneficiaries are unlikely to have the cash needed to pay HMRC, even with 10 years of installments.
“The only way to come up with that is to sell the business. That could be to a large multinational, which could be foreign-owned, and without that commitment to the local community,” he says.
“The question for the government is: do they want these sectors to be owned by giant multinationals?”
He also says the inheritance tax change is a disincentive to invest. If an investment was to increase a family firm’s value by £10m, he believes that the 20% tax bill at the point of death may no longer make it look financially viable.
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