Business Property Relief

Reducing the risk of IHT on business assets

If you own a business or share of a business, then its value is included your estate for Inheritance Tax purposes.

However, some businesses, farms,  farmhouses, etc. may qualify for Inheritance Tax (IHT) relief , whether gifted within a Will or within your lifetime and regardless of its value.  Depending on the asset the relief could be either at 100% or 50% and this reduces the value of the estate when calculation IHT.

This tax relief is called Business Property Relief (BPR) or Agricultural  Property Relief (APR) and you can only get relief if you owned the business/farm or asset for at least 2 years before you died.

What qualifies for BPR at 100%

  • a business or interest in a business
  • shares in an unlisted company (including some AIM-listed companies)

What qualifies for BPR at 50%

  • shares controlling more than 50% of the voting rights in a listed company
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
  • land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

What doesn’t qualify for BPR

You can’t claim BPR if the company:

  • mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
  • is a not-for-profit organisation
  • is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
  • is being wound up, unless this is part of a process to allow the business of the company to carry on

You can’t claim BPR on an asset if it:

  • also qualifies for APR
  • wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
  • isn’t needed for future use in the business

If part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.

What are the potential issues and solutions?

Although Inheritance Tax may be avoided if you leave your business assets or shareholding, agricultural assets or AIM-listed share portfolio to a spouse or Civil Partner, if these are sold during his or her lifetime or if BPR/APR (it’s always on the agenda of the Chancellor) is abolished between 1st and 2nd deaths, the proceeds become taxable on second death.  Your children or other beneficiaries may be obliged to hand over 40% of their inheritance to the government.

By gifting your business/agricultural assets that qualify for BPR/APR in your Will into a trust the surviving spouse and children can make use of the assets during their lifetime and are not subject to Inheritance Tax at 40% on the second person’s death.  The trust can be used in conjunction with a Cross Option Agreement and other tax or estate planning trusts in your Will.