Business relief and inheritance tax
Business property relief (BPR) – all you need to know
If you own business assets, business property relief (BPR) is a very valuable relief from inheritance tax (IHT) which can reduce the taxable value of those assets to nil. We look at the fundamentals of BPR and how it might benefit your estate.
How does business property relief work?
Business property relief works by reducing the taxable value of business assets by either 50% or 100% depending on the nature of the asset and how it is used.
Broadly, IHT is payable at 40% on estates which exceed £325,000 in value (£650,000 for a married couple or couple in a registered civil partnership.) All estates can potentially qualify for further reliefs from IHT with probably the most used IHT relief being spouse relief which applies when assets are left to a surviving spouse or civil partner.
For example, David owns a 70% shareholding in an unquoted industrial cleaning partnership worth £750,000. He also owns an office block valued at £250,000 which he lets to the company. If business property relief was not available these assets would potentially attract an inheritance tax bill of £400,000. However, the shares in the company should receive 100% business property relief reducing the tax bill on them to nil; the office block should receive 50% relief as an asset used in a business, reducing its taxable value to £125,000 and the total tax bill to £50,000.
What assets qualify for business property relief?
To qualify for business property relief the following assets must be owned for two years in order to benefit from BPR. Agricultural property will benefit firstly from Agricultural Property Relief but if this is not available, the asset may qualify for BPR if it is a business asset.
|Type of asset||Rate of BPR|
|A business or interest in a business||100%|
|Unquoted shares in a company which gave the holder control of the company||100%|
|Other unquoted shares||100%|
|Quoted shares in a company which gave the holder control of the company||50%|
|Any land or building, plant or machinery which was used, immediately before the transfer either wholly or mainly for the purposes of the business being carried on by the transferor either solely, in partnership or by a company of which he then had control||50%|
|Any land, building, plant or machinery where the property was settled property and the transferor had an interest in possession||50%|
How is business property relief claimed?
If you pass away owning business assets, business property relief can be claimed by your executors when they submit details of your estate to HMRC before applying for a grant of Probate to your estate. An experienced probate solicitor will be alert to the best way of claiming BPR on your estate and can maximise relief if necessary, by using a Deed of Variation within two years of your death to put in place the most tax efficient arrangements.
Lifetime planning and BPR
The best course of action is, however, to take action while you are living to ensure any later claim for business property relief is maximised. Carefully drafted Wills, for example, can enable both spouses to take advantage of BPR and to put assets outside of the IHT net on the second death.
Succession planning to benefit the next generation is also key to making the most of business property relief. Occasionally it’s necessary to make some adjustments to the way that assets are owned to qualify for BPR or to benefit from its highest rates. In our example above David may well have been advised to transfer ownership of the office block to the company in order to benefit from 100% BPR.
How Clarke Willmott can help
If you own your own business, we recommend you take expert advice to ensure you’re able to pass it on to the next generation without any unnecessary tax being paid. Clarke Willmott has extensive experience of helping business owners to structure their affairs in the most tax efficient way possible.
Our Business Succession Plan is designed to make the most of business inheritance tax relief including property relief to minimise the inheritance tax payable on your estate. We also have specialist solicitors within the firm with the expertise to revise partnership or shareholder agreements in line with your succession plans.
Contact an inheritance tax solicitor
For expert advice on business property relief, call an inheritance tax solicitor on 0800 652 8025 or contact us online to arrange a free consultation. Our solicitors represent clients nationwide from our offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.