Business Property Relief; none of your business

Tax. Famously one of life’s inevitabilities, it is a necessary evil that can’t be avoided (just ask Al Capone).

Rightly or wrongly, inheritance tax is often named as one of the UK’s most hated taxes. Thankfully, with the introduction of the Residential Nil Rate Band earlier this year, we are in a much more fortunate position than we have been previously. Theoretically, a married couple can now leave up to £1 million pounds to their descendants without paying a penny to HMRC, but is there anything else you can do to avoid your estate going to the tax man? If you have a business interest or run your own company then indeed there is. So sit down at the back and pay attention.

If you have owned a business for at least two years prior to your death, your executors will be able to claim Business Property Relief (BPR) on certain business assets. Good news, huh? It gets better. Qualifying assets can obtain relief of up to 100%. That means that even if the assets are worth £1 billion, you can give them away without paying a penny in tax.

You can get 100% business relief on a business or interest in a business, or shares in an unlisted company, while 50% relief is available on:

  • shares controlling more than 50% of the voting rights in a listed company;
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled; and
  • land, buildings or machinery used in the business and held in a Trust that it has the right to benefit from.

It’s important to be aware that you can’t claim business relief if the asset is not needed for future use in the business.

What’s more, business assets can actually be given away while the owner is still alive and qualify for business relief. However, certain criteria need to be met – for example, the recipient must keep them as a going concern until the death of the donor.

Despite the booming buy-to-let industry, it should also be clarified that rental property does not qualify for the relief, as it does not meet the criteria of ‘trading’. A business which only generates investment income will not attract BPR, so this excludes:

  • A residential or commercial property letting business
  • A property dealing businesses
  • A serviced office business.

Some business activities are borderline: whether they will qualify for relief depends on the nature of services provided, typically these include holiday businesses, property management and caravan parks – where there is letting, holidays and caravan sales.

Business property relief can make a huge difference to the eventual inheritance tax bill of your loved ones and can also help with succession planning. But it requires careful planning in order to ensure it is available when you need it. Dictating exactly what happens to your assets after you die is incredibly important, whether you own a business or not, and a Will is the best way to do that. It is a terrific way to reduce the uncertainty and upset your loved ones face after you pass away.

If you own a business, or are interested in becoming a business owner, and would like advice on how to include this within your Will, talk to legalmatters. Check your eligibility and ensure that what HMRC is entitled to, is none of your business.

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