In the face of sweeping changes to inheritance tax laws in the UK, British hotel and restaurant tycoon Steve Perez is taking proactive measures to safeguard his business empire. Perez, who owns a portfolio of upscale hotels and restaurants across the East Midlands, along with the successful drinks company Global Brands, has opted to purchase a £6 million life insurance policy. This move is designed to protect his business assets from the potentially crippling effects of inheritance tax, which could force his family to sell parts of his company in the event of his death.
Inheritance Tax Reforms Trigger Action
Steve Perez’s decision to take out a substantial life insurance policy comes in the wake of recent announcements made by Chancellor Rachel Reeves regarding inheritance tax reforms. These changes, which were unveiled during her first Budget as Chancellor, include a significant reduction in relief for business assets, which Perez and other business owners fear could lead to heavy tax burdens on family-run companies.
Perez, who founded Global Brands in 1997 after creating the popular vodka cocktail VK, expressed concerns about the impact the new rules could have on his family’s ability to preserve his business legacy. He stated, “I’m 68, and come April next year, my business potentially will have a huge, huge tax bill.”
A £6 Million Safety Net for the Future
Perez, who now employs 400 people across his hotel and restaurant operations, explained that the £6 million life insurance policy is a necessary safeguard for his business’s future. While the policy will undoubtedly put a strain on his finances, he emphasized that it is a necessary investment to ensure the survival of his business after his death.
He said, “Instead of investing the money back into the business, I’m having to take money out of the business to pay the life insurance policy, just in case I die while these laws are in place.” The policy is intended to cover the inheritance tax liabilities his estate would incur, ensuring his family doesn’t have to sell parts of the business to pay the tax. Perez’s primary concern is not necessarily the financial benefit for his heirs but rather the continued prosperity of the business and the well-being of the employees who rely on it.
Potential Consequences of New Tax Laws
The changes to inheritance tax rules, which come into effect next April, will significantly impact family-owned businesses. Under the new regulations, business properties worth more than £1 million will be subject to a 20% inheritance tax rate. Previously, such properties could be passed down without incurring any inheritance tax, providing a significant financial benefit for business owners looking to pass on their enterprises to their heirs.
For Perez and others in similar positions, the changes present a stark challenge. Without adequate preparation, many family businesses could be forced to sell off assets or entire operations to pay the tax bill, potentially resulting in the loss of control or the sale of businesses to foreign corporations or private equity firms that may not prioritize local jobs or community interests.
Perez explained, “I built this business up from the back of a van and we now employ 400 people in Derbyshire. I suspect if the business had to be sold, it would go to a foreign corporation, or it would go to a private equity type of business which wouldn’t care about the local area and employees as I do.”
Rising Demand for Life Insurance Policies
Perez is not alone in his concern about the inheritance tax reforms. Business owners across the UK, particularly in the farming and hospitality sectors, have voiced similar fears about the potential consequences of the changes. The decision to limit relief on agricultural properties valued over £1 million has been particularly controversial, sparking outrage among farmers who worry that the tax could force them to sell land or assets to cover the liabilities.
In response to the upcoming tax changes, life insurers in the UK have reported a notable increase in the number of individuals seeking life insurance policies. These policies, which are typically purchased to provide a financial safety net for family members or business stakeholders in the event of the policyholder’s death, have become a popular tool for mitigating the financial burden of inheritance tax.
Perez’s policy, which covers him for 10 years, is designed to shield his business from a potentially overwhelming tax liability. He hopes that within that time frame, there will be a change in government or a shift in policy that will reconsider the impact of these tax reforms. “Should it not be changed in the next 10 years, hopefully, we’ll get a government in, whoever it might be, who’ll see common sense,” Perez added.
The Wider Impact on UK Businesses
The recent changes to inheritance tax laws have raised alarm among many UK business owners, especially those who have worked hard to build up family-run enterprises. While large corporations with access to vast resources may be better equipped to handle such tax liabilities, small and medium-sized businesses could struggle to survive without significant changes to their tax and succession planning strategies.
Industry groups have warned that the inheritance tax changes could lead to a wave of business sales and restructurings, particularly among family-owned companies that have relied on tax relief to pass down ownership. For many, this could mean the loss of generational wealth, local jobs, and long-standing family legacies.
In addition to the financial burden, the changes may discourage investment in UK businesses, as owners may be hesitant to expand or reinvest their profits if they face the prospect of a significant tax bill upon their death. This could have a negative impact on the overall economy, as family businesses play a crucial role in job creation and local economic growth.
Conclusion: Preparing for the Future
As Perez’s case highlights, the new inheritance tax laws present a significant challenge for family-owned businesses in the UK. While life insurance policies like the one Perez is taking out can offer a temporary solution, they do not address the underlying issue of the potential tax burden that could force businesses to sell or restructure. Business owners like Perez are hoping for a change in policy that will alleviate the pressure on family businesses and allow them to continue thriving for generations to come.
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