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.
You can’t claim BPR if the company:
You can’t claim BPR on an asset if it:
If part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.
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.