Business Property Relief

Business Property Relief (BPR) can reduce Inheritance Tax liabilities by very substantial sums and is available, subject to certain conditions, on the following assets:

  1. a business or interest in a business (eg, a sole trade or partnership)
  2. unquoted securities giving control of a privately owned company
  3. unquoted shares in a privately owned company
  4. quoted shares (eg, those listed on the LSE) giving control of the company
  5. land, buildings and plant used wholly or mainly in a business controlled by the asset owner, or a business in which he is a partner
  6. land, buildings and/or plant and machinery which is settled property and is used by a life tenant wholly or mainly in a business controlled by the life tenant, or in a business in which he is a partner

The rate of relief is 100% on assets in categories 1-3, and 50% on assets in categories 4-6

The relief is available on 'transfers of qualifying assets', whether they be during a person's lifetime or on their death.

Relief is not available for:

  • Businesses that are wholly or mainly engaged in dealing in securities, stocks and shares, land, machinery or buildings, or in making/holding investments
  • Businesses that are not carried on for a gain
  • Business interest or shares in a company that are subject to a contract for sale pre transfer
  • Shares in a company that is in the process of being wound up

Additional points to note:

There is a minimum period of ownership of two years immediately before the transfer.

If you inherit the property the ownership period runs from the date of death, unless you acquire the property from your spouse/civil partner, in which case you can join their period of ownership with your own.

Ownership periods can also be joined where new business property replaces other business property.

Not all the assets held in a business will necessarily qualify for relief; eg: those assets:

  • not used wholly or mainly for business purposes throughout the two years immediately before transfer
  • not required for an identified future business purpose

BPR is not available in respect of a Director's loan account or a loan made to a partnership after retirement.

Important BPR issues that may require consideration

  • Are there agreements in place requiring on the death of a shareholder or partner the remaining business owners to buy their share and the deceased's personal representatives to sell to them? If there is a binding contract for sale BPR is not available.
  • Are your businesses structured correctly to maximise BPR?
  • Is your business too cash rich?
  • Are your business assets held within your company or by you personally? The former attracts BPR at 100% and the latter only at 50%.

 

See Examples of Tax Planning savings for further information.

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