Business Property Relief

4th Apr 2006

Helen Biglin, Partner in Wills Trusts & Probate, discusses how Business Property Relief can help to minimise Inheritance Tax liability.

Business Property Relief (BPR) is a widely available yet sometimes under used means of minimising inheritance tax liability.
BRP is an inheritance tax (IT) relief available against ?relevant business property? transferred during a person?s lifetime or on their death. It reduces the chargeable value for IT by 50 per cent or even 100 per cent depending on the type of business property involved and provided that certain conditions are fulfilled.

A 100 per cent reduction in value applies to: sole businesses and partnership interests (including professions and vocations); and unquoted voting securities and shares (including Alternative Investment Market securities) of a private or family company controlled by the transferor (i.e. the person making the gift).

A 50 per cent reduction in value applies to: quoted voting shares in or securities of a company controlled by the transferor; any land or buildings, machinery or plant owned by the transferor and used mainly for business by a company controlled by the transferor or by a partnership; or certain settled property. Most business will be covered but there are some exceptions. For example the business carried on must not wholly or mainly deal in securities, stocks or shares, land or buildings, or wholly make or hold investments. Nor must the business that is transferred be subject to a winding up order (whether voluntary or compulsory) or be in the process of liquidation unless this is part of a process of reconstruction, which is completed no longer than a year after the transfer of value.

Generally speaking property will not qualify for relief unless it falls into one of two categories. It must have been owned by the transferor for the two years immediately preceding the transfer. Or it must have replaced other property, with the earlier and replacement properties being owned by the transferor for two years falling within a five year period prior to the transfer.
Again, there are some exceptions. With a carefully drafted Will and appropriate lifetime planning you can ensure that the maximum benefits and reliefs are passed to your family or other beneficiaries. For example, it may be more sensible to pass business property to children rather than a spouse. Another option may be to place the property into trust.

To be certain of BRP the property can be transferred into a Discretionary Trust to secure the relief immediately. This route could be used if it is thought that the rules regarding BPR may change and no longer cover the assets on the death of the transferor.

Author: Bryan Hoare