Community shares shine in a changing tax landscape

This week, farmers have made the headlines, protesting the changes to agricultural property relief, with the media labelling it the "tractor tax.” This was one of a number of significant shifts in inheritance tax reliefs announced in the recent budget that will impact various investment types. 

Another key change is the inclusion of unused pension funds and death benefits in a person's estate for inheritance tax purposes from April 2027, so, for example, any unused money within your defined contribution pensions, defined benefit pensions, group personal pensions and SIPP (Self-Invested Pension Plan) will count towards your inheritance tax threshold.

While these recent tax changes may not be universally welcomed, they do shine a spotlight on the enduring appeal of community shares. Investments in community share offers remain exempt from inheritance tax (up to £1 million) and anything over that is subject to a 20% tax rate, rather than the general 40% rate. In this article, we'll delve into the specifics of these changes and underscore why community shares remain an attractive investment choice.

From April 2026, there will be a combined limit of £1 million on business and agricultural property that is eligible for 100% inheritance tax relief. Any property exceeding this limit will qualify for 50% relief.

Importantly, shares in unlisted trading companies are categorised as "business property."

Withdrawable shares in Community Benefit Societies are treated in the same way as unlisted company shares for inheritance tax purposes.

To benefit from this relief, the Community Benefit Society must be actively engaged in trading activities with the goal of making a gain (as well as the core impact objective). This trading objective should be clearly outlined in the society's stated goals and demonstrated through its actions, such as the payment of interest on capital.

So, if these conditions are met, it is possible to transfer business property - including community shares - of up to £1 million free from inheritance tax, this being in addition to any of the estate that falls within the nil-rate band where inheritance tax is not incurred.  Investments up to £1 million in community shares will be exempt from inheritance tax, while those exceeding £1 million will be taxed at 20% instead of 40%.

Another important benefit of community shares is that they are generally accessible to a wider range of people in comparison to unquoted shares in private companies, which typically may only be accessed by family investment funds, angel investors, or private equity firms. Most community share offers have a low entry level, making them an attractive option for everyday investors who also what to create impact.

Given the proven positive social and environmental impact created by investing in community share offers, we wonder why they don’t get the attention they deserve and feel the changes announced in the budget are a great opportunity to shout about it.

For the past decade, Ethex has been proud to introduce investors to community share offers, supporting a range of impactful sectors like renewable energy, affordable housing, ethical finance, and sustainable farming.

Currently, the Wiltshire Wildlife Community Energy share offer is live, raising funds for a solar array hosted on Silverwood School for children with special needs. This project will not only shield the school from future price hikes but also reduce carbon emissions and generate income to provide opportunities for students to engage in sustainability and biodiversity initiatives. 

Also open on Ethex is The Fair Tax Foundation community share offer, raising funds to grow the organisation, which aims to grow the number of Fair tax Accredited businesses fivefold, resulting in a combined corporation tax contribution in excess of £8.5bn per annum and celebrating responsible tax conduct.

If you’re interested in exploring the potential financial, social and environmental benefits of investing in community share offers, take a look at the Ethex platform and browse our live community share offers.

Reference:

https://www.gov.uk/government/publications/agricultural-property-relief-and-business-property-relief...