TaxPersonal TaxIHT relief prompts investment in SMEs

IHT relief prompts investment in SMEs

Investing in unlisted companies could drive down inheritance tax bills by more than £500m

IHT relief prompts investment in SMEs

TAXPAYERS are expected to reduce their inheritance tax bills by a record £565m this year by investing in unlisted companies, according to private equity firm Radius Equity.

The increase in the value of tax reliefs on inheritance tax (IHT) bills is evidence of the increasing popularity of government-backed schemes, designed to encourage investment in small businesses, such as the Enterprise Investment Scheme (EIS), the firm claims. The government permits those who have inherited shares in unlisted businesses to exclude the value of these assets from the IHT bill for the estate.

Despite the changes to IHT announced in the chancellor’s Summer Budget – where property worth up to £1m can now be inherited free of tax – it is anticipated that HMRC will still collect more than £3.5bn in IHT in 2017/18. In 2014/15, HMRC collected £3.8bn in IHT receipts, up by 23% from £3.1bn in the previous year.

The value of business property relief claimed by investors in small businesses has also increased considerably in the last two years, up 5% from £540m in the previous year and up by 47% from £385m in 2012/13.

Gary Robins, Director at Radius Equity, explains: “The increased take-up of tax reliefs emphasises the growing investor appetite for investing in ambitious SMEs. The large increase in the amount of Inheritance Tax collected by HMRC shows that there is still more capacity for more investors to take advantage of the generous reliefs on offer.”

“These reliefs not only minimise investors’ IHT bills, they also unlock a wider range of funding opportunities for SMEs – vital for their growth as many still find it difficult to secure lending from banks.”

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