It is possible to reduce inheritance tax by using the business property relief

Business property relief

Business property relief (BPR) is a way for UK businesses to reduce or eliminate inheritance tax on certain business assets. BPR was introduced in 1976 to help family-owned businesses continue trading after the owner’s death. They could do this without having to sell shares or the entire business to pay inheritance tax. 

Inheritance Tax

BPR has since evolved. It is now often used to minimize tax on gifts made during a person’s lifetime or after their death. In order to qualify for BPR, a business must not be listed on a main stock exchange. Therefore, it may not be an option for public limited companies. Private limited companies, limited liability partnerships, and sole trader businesses may qualify for BPR. In order to qualify, a business must pass the 50% trading test. This means that less than 50% of the business’ activity must be made up of investment activities. For example, purchasing stocks and shares or buying land and buildings. It’s best to speak to us at Jack Ross Chartered Accountants if you’re unsure if your business qualifies for BPR.

In the case of business property relief, you can minimize or eliminate inheritance tax on the assets of your business. It is a complex area of estate planning that may require expert assistance in order to get it right. This is because many UK businesses qualify for up to 100% relief in business property tax. It is also possible that you may find that other strategies may be better suited to your unique circumstances. This can include lifetime gifting.

Is it possible to get relief for business property?

An inheritance tax (IHT) deduction can be made on certain business assets through the use of Business Property Relief (BPR).

Over time, BPR has evolved to become a popular way for investors to minimize their tax deductions after a death. Also when making lifetime gifts. Investors holding BPR-qualifying, AIM-listed shares in an ISA in 2013, we were even more tax efficient. In the coming years, it is likely that this situation will continue to change. This is hopefully for the benefit of the inheritors.

I would like to know what types of businesses are eligible for relief from business property taxation?

There’s a requirement for a company to not be listed on a main exchange in order to qualify for BPR. As a result it may not be possible for public limited companies to apply for the BPR program. Nevertheless, many business interests, such as limited liability partnerships, sole traders, and limited liability companies, are eligible for BPR. Some examples are:

Even if you have a minority stake in an unquoted company, you are allowed to own its shares

Companies that are listed on the Alternative Investment Market (AIM) are considered as alternative investments

Throughout the generations, the business has been handed down from generation to generation as a family enterprise

There has been no change in the current legislation since 6 April 1996. This requires sole traders wishing to transfer their business as a whole entity to qualify for 100% BPR. However, sole traders are not eligible for BPR for land, buildings or machinery primarily used for business purposes.

What are the requirements to qualify for relief from property tax on business properties?

Business and partnerships in general have the opportunity to qualify for Business Property Relief (BPR). However, they must meet the 50% trading test. According to HMRC, in order for a business or partnership to qualify for BPR, less than half its activity must be devoted to investment activities, such as the following.

  • Stock and share purchases are a great way to make money
  • It may be necessary to purchase a building or piece of land for your business
  • An investment portfolio is a collection of investments

Consequently, an investment business would not qualify for BPR as such. For example where the land/property is purchased and then sold without any changes being made. As a result, this can get a little complex. There are a lot of companies that are qualified. For example a property development company that purchases land, builds on it, and then sells it. Even if only 51% of the business’s activities are related to active trade, the business will still qualify.

It is also important to find out if your business is in the process of being wound up or amalgamated as soon as possible after your death and if it is not in the process of being wound up or amalgamated within a year. If you are unsure if your business qualifies, it is best to seek professional advice.

It is possible to reduce inheritance tax (IHT) on business property by taking advantage of the business property relief when someone dies?

The executor of a Will or the executor of the estate can claim BPR rather than the deceased person when working out the value of an estate after someone dies. Here are the steps you need to follow when claiming BPR after someone dies.

  • Calculate the business’s and/or its assets’ worth based on the information that is available to you
  • Depending on the type of business you have, you can either qualify for 50% or 100% BPR. If you’re not sure if you qualify, you can ask your solicitor or a financial advisor.
  • There is no need to do anything else if the estate qualifies for 100% BPR.
  • You will need your inheritance tax reference number from HMRC if you decide to make a payment under 50% BPR on your business and/or assets. You will need to apply for this three weeks before you make your payment. In inheritance tax, you may apply for a reference number either online or by post.
  • Make sure that both forms IHT400 and IHT413 are filled out correctly and submitted to HMRC as soon as possible
  • If inheritance tax is owed as a result of the death of an individual, it must be paid within six months

How do I qualify for 100% BPR to reduce my inheritance tax?

In order to qualify for BPR at 100%, the business must be able to qualify for 50% trading and meet the following criteria:

  • An interest in or a business that is owned by another person
  • Shares listed on the AIM market that are unquoted (even those listed on the AIM market)
  • Shares and securities of an unquoted company that are unquoted in order to give them control over the company (either alone or together with other unquoted securities)
  • Several other assets are also eligible for a 50% BPR, including the following ones:
  • Shares of a company that are quoted on the stock market and grant control over it
  • Business property that is used exclusively for the purpose of conducting business, such as land, buildings, or machinery
  • There are a variety of land, buildings, and machinery that have been used by a beneficiary in the operation of their business

In some cases, businesses are not eligible for BPR based on certain assets. Some examples are buy-to-let properties and buy-to-let properties are not eligible for BPR based on the fact that they are purely investment assets.

Do spouses qualify for an exemption from the inheritance tax?

It is usually tax-free to inherit your spouse’s assets as long as you are legally married or in a civil partnership.

There are three forms of legal marriage in the UK: civil marriage, religious marriage, and marriage by civil partnership.rn

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 • Civil marriage is a ceremony performed by a government official or authorized registrar. It is a secular ceremony that does not include any religious elements and can be held at a registry office or other approved venue.rn

 • Religious marriage is a ceremony performed by a minister, priest, or other religious leader according to the customs and beliefs of a particular religion. Not all religious marriages are recognised as legal marriages, and so you should check before relying on this exemption.

 • Marriage by civil partnership is a ceremony performed by a government official or authorized registrar for couples who are not able to marry under traditional law, such as same-sex couples. This type of ceremony is similar to a civil marriage but includes a declaration of partnership rather than marriage. 

As an added bonus, if your partner has any unused nil-rate bands (the amount of tax-free allowance they can use for inheritance gifts), you can apply those bands to your estate as well. As of right now, you can leave up to £650,000 in tax-free allowance to your chosen beneficiaries when pooling both of your inheritance tax allowances. 

Before a business can qualify for financing, how long must the business have owned the property for?

After two years of owning a property, a business can apply for business property relief. It is also not necessary to use the land or property for the same business in order to qualify; you only need to prove that the space has been used for any business purpose.

In conclusion, it is essential to know the rules and regulations surrounding inheritance gifts and business property relief in order to take advantage of these tax-free allowances. These allowances can be pooled between both spouses to unlock up to £650,000 in tax-free allowances. By researching relevant information and understanding the rules, you can make the best financial decision for your business and its future. Start by looking at what HMRC have to say here.

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