Business Property Relief

Please note: The following should only be intended as a brief introduction to BPR. BPR is a complex area with a number of pitfalls. When it comes to specific cases, we are only able to give a basic overview on whether a business may or may not qualify for BPR. It is highly advisable that clients contact their accountants who will have a more in-depth knowledge of the business to give a certain answer. Their accountant will also be able to give ongoing advice to ensure that the business is run in a way that ensures that the business continues to qualify for BPR.

Business property relief can significantly reduce or eliminate inheritance tax on business assets. Many UK businesses could be eligible for up to 100% relief. However, this complex area of estate planning often necessitates professional advice. Other strategies, such as lifetime gifting, may also be advantageous. Formerly known as business property relief (BPR), it is common for Will Writers to work with accountants to ensure precise fulfilment of your needs.

Business relief (BR) reduces the inheritance tax on certain business assets. Introduced by the Finance Act of 1976, it allowed family businesses to continue after death without needing to sell shares or the business to pay the inheritance tax. Over time, business relief has evolved, with governments recognising its importance in encouraging business investment. In 2013, the rules were changed to include BR-qualifying AIM-listed shares in an individual savings account (ISA), thus improving tax efficiency.

To be eligible for Business Relief, a business must not be listed on a major stock exchange, rendering public limited companies generally ineligible. However, many private limited companies, limited liability partnerships, and sole traders or business interests may qualify for BR. Examples include:

- Shares in unquoted companies, even with a minority holding

- Shares in companies on the Alternative Investment Market (AIM)

- A family business passed down through generations

Since April 6, 1996, sole traders have been eligible for 100% Business Relief when transferring their entire business as a single entity. However, they do not qualify for Business Relief when transferring land, buildings, or machinery primarily used for business purposes.

To qualify for Business Relief, several criteria must be considered, including the nature of the business and the assets involved. It is advisable to consult with a professional to navigate the complexities of this relief.

Do I need a financial adviser to do this?

Inheritance tax can be complex, so it’s advisable to seek assistance from a professional financial adviser. Trying to make your legacy tax efficient without expert help may not be effective and could lead to unintended consequences. A financial adviser specialising in estate planning can clearly explain your options and develop a strategy to reduce your inheritance tax burden. Even if you don’t qualify for Business Relief (BR), they will work with you to find alternative solutions that help your beneficiaries retain as much of your assets as possible.

FAQs

Should I use a discretionary trust for business property relief?

It’s wise to establish a discretionary trust if there is a chance that the deceased’s spouse or business partner may not wish to manage the business. If the business is sold, the cash from the sale will be released, resulting in it no longer qualifying for Business Relief (BR). However, by setting up a discretionary trust to legally own the assets and their proceeds, the assets will remain eligible for BR, regardless of whether the business or its assets are sold.

Is there a spouse exemption?

If your spouse has listed you as the sole beneficiary in their Will, you can generally inherit their assets without paying taxes. Additionally, you can apply any unused portion of your partner’s nil-rate band (the tax-free allowance for inheritance gifts) to your estate. This means that you currently have a total tax-free allowance of up to £650,000 to pass on to your designated beneficiaries.

How long does the business need to own the property before it can qualify?

A business can benefit from business property relief after owning a property for two years. You don't need to have used the land or property for the same business; it’s sufficient to show that the space was used for any business purpose. However, three exemptions may allow you to claim the relief regardless of how long you have owned the property.

• If the person transferring the property inherited it following another person’s death
• If the transferred property replaced another business property
• If the transferred property was acquired as part of an earlier transfer within the two-year period