Business Property Relief And Inheritance Tax
It's a very valuable tax relief ...
Business Property Relief (BPR) is very valuable because, on a business owner's death, there is no Inheritance Tax to pay. This means that businesses can be passed on to beneficiaries without them having to worry about paying any tax ...
Business Property Relief does have some exceptions, but it is usually very welcome!
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Relief is given on 'business property'. So what is that? Assets qualifying for 100% BPR can be summarised as:
Shares in an unquoted trading company
Assets owned by a sole trader business or a share in a partnership
Shares listed on the Alternative Investment Market (AIM).
There is no minimum percentage holding requirement.
BPR is available at 50% on these assets:
Shares in a quoted trading company in which the individual has voting control
Land and buildings or plant and machinery owned by the individual and used in their partnership or a company that they control.
In order to qualify the following conditions must be satisfied:
The business property must have been owned for a minimum period of two years (subject to limited exceptions).
The business must be 'wholly or mainly' trading. Case law has established that 'mainly' trading equates to at least 50% and factors such as turnover, profits and asset base may be considered individually, but the business will be assessed as a whole.
Businesses that are wholly or mainly carrying on a business of property letting do not qualify for BPR, as they are not trading. This includes furnished holiday letting businesses which may be eligible for other beneficial tax reliefs.
Once it has been established that BPR is available for a business, some restrictions still need to be considered. The relief depends on whether the business holds any 'excepted assets'.
An excepted asset is an asset that has not been used in the business for the two years before death and will not be required for future use in the business. Common examples of excepted assets include large cash surpluses that have not been earmarked for future use or shares held by a business for investment purposes.
Property owned by a business in which a shareholder is currently living would also be included.
It is important to distinguish between 'the business' and 'the trade'. The asset does not have to be used in the trade itself, just in the business.
This means that a property let to a third party by a company that is mainly trading may not be considered an excepted asset as long as it is used within the business as a whole. Therefore, subject to commercial risks, carrying on a business of property letting within a business that is wholly or mainly one of property development, could mean that the property letting business qualifies for BPR.
"The rules regarding BPR are complex and the relief can easily be lost!"
It is a good idea to ask your adviser to consider whether business property relief is available on your business or company, and if not, to advise you on the best way to avoid Inheritance Tax on your business.
If you'd like to talk to me about Business Property Relief then do call me on 0333 335 0427 or click here to send me an email enquiry and let's see how I can help you.
Until next time ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.