Business Property Relief
Posted on 4th May 2023 at 11:35
If you own a business, or have an interest in a business (e.g. shares) your estate may be entitled to relief from Inheritance Tax (IHT).
What’s the issue?
Inheritance Tax is the tax paid on your estate after you have passed away. Your estate consists of everything you own. Every person in the UK currently has an IHT allowance of £325,000 – this is known as the nil-rate band (NRB). If the value of your estate is higher than this figure, you will need to pay IHT on the excess.
With Business Property Relief (BPR) the value of qualifying business assets are reduced by either 50% or 100% when working out how much IHT has to be paid.
What are qualifying assets?
Typically BPR is available on:
qualifying trading business
shares in an unlisted qualifying company, including a minority holding
shares in a qualifying company listed on AIM
BPR is NOT available on investments, so Buy to Let investors would not qualify.
You can receive 100% IHT relief on a trading business, or interest in that business, and shares in an unlisted company.
You can receive 50% relief on land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled.
Who is eligible for BPR?
To receive BPR, you must have owned the business or business assets for at least two years before your death. So, if you pass away shortly after acquiring the asset, your estate won’t be eligible for the relief. The exception here is if you inherit the asset from your spouse, who also owned it for less than two years. In this scenario, your period of ownership is added to that of your late spouse. If the combined period of ownership exceeds two years, you will be eligible for BPR relief.
Investing your money into a qualifying business can be an effective way of reducing IHT. Unlike gifts and trusts which generally take 7 years before they are exempt from IHT, BPR starts 2 years after death.
You can still give away business property or assets whilst you’re still alive, and the estate can get BPR on IHT, as long as the property and assets qualify. The recipient must keep them as a going concern until the death of the donor if they want to claim the relief. They will only get relief if the donor owned the business or asset for at least 2 years before it was given.
If you have a business and you are looking to pass that business on when you die, then plan ahead and seek advice, regardless if you are eligible for BPR, so that you have your affairs in the best order for your family.
Tagged as: business owner, business planning, Business Property Relief, inheritance tax, tax planning
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