Using Business Property Relief (BPR) to reduce the value of your estate for inheritance tax (IHT)
Inheritance tax (IHT) is most commonly levied upon the value of a person’s estate when they die (though it can also arise on some lifetime gifts). According to HMRC, only about 4% of estates pay IHT. This is largely due to the generous array of IHT reliefs, but also because, with sensible tax planning, IHT can be an easy tax to avoid.
Business property relief (BPR) is a relief that reduces the value of property on which IHT is charged. This reduction is generally available where a transfer of business property is made.
The amount of reduction you can receive will be at a rate of either 50% or 100%, depending upon the type of business property concerned.
What ‘business property’ qualifies for BPR?
Property qualifies as business property if it meets three conditions:
the property must have been owned for at least two years continuously before death (or before the lifetime)
the property must be ‘relevant business property’
the business must be mainly trading (broadly speaking less than 50% of the business ongoings should be from investment activities)
What is ‘relevant business property’?
The types of business property that potentially qualify for 100% BPR include:
unquoted shares in a company. Unquoted shares are those that are not listed on a recognised stock exchange. Shares listed on the Alternative Investment Market (AIM) are considered unquoted for this purpose.
loan notes in an unquoted company.
property consisting of a business. This is typically a sole proprietorship. The business property includes the value of the assets used in the business (premises, machinery, equipment, intellectual property and working capital) and is reduced by the liabilities of the business
property consisting of an interest in a business. This is typically a partner’s share in a partnership
The types of business property that potentially qualify for 50% BPR are typically land or buildings, machinery or plant used by a company or partnership in the course of trading.
For further guidance on BPR and succession planning, contact Bearstone