What is Business Property Relief?
Business Property Relief (BPR) is a valuable form of tax relief. It allows you to claim Inheritance Tax (IHT) relief on business assets you own, including shares in qualifying businesses.
In this article, we look at the basics of Business Property Relief and explain how it works discussing the potential benefits and risks in estate planning.
Background
Business Property Relief was originally introduced in 1976 as an additional form of tax relief with the aim of reducing the overall inheritance tax payable on an individual’s estate.
Since BPR was introduced, changes to how the relief works have continued to be made by successive governments, until we reached the point of where we are today with the current rules on the revised BR (Business Relief).
The tax relief available is in relation to business assets, with certain conditions and criteria set.
What business assets are relevant?
Relevant business assets include:
100% tax relief is available in relation to business assets if the property consists of:
business or an interest in a business (including a partnership)
unquoted shares in a company
a controlling holding of unquoted securities of a company
property
50% tax relief is available in relation to business assets if the property consists of:
any land or building machinery / plant used wholly or mainly for the purpose of the business carried on by a company which the transferor controlled or by a partnership of which the transferor was a partner
a controlling shareholder in a quoted company
One important additional change to BR over more recent years has been the inclusion of AIM shares held within ISAs as a BR qualifying asset with the tax efficiency of a Stocks and Shares ISA.
How Business Property Relief works
Investments in Business Relief qualifying investments offer the investor the opportunity to move IHT assessable funds from within their estate to being tax exempt from IHT after a holding period of 2 years, providing they are still held at date of death, this is unlike traditional estate planning where lifetime gifts and trusts are subject to a seven clock.
BR offers a tax savings to the estate of 40% on qualifying investments with no impact on the nil rate band.
How to invest in BR qualifying assets
Over recent years, at Legacy we have seen an increased interest in investments into BR qualifying assets as part of a client’s overall estate planning strategy.
Click the image above for a real life client example of how Legacy utilised BR for a recent client’s estate planning.
Investing via Inheritance Tax Solutions Products (ITS) and Enterprise Investment Schemes (EIS), being two of the popular solutions for our own clients.
To help conceptualise the difference Legacy can make, explore our BR Client Case Study.
If you are interested in understanding the difference Legacy can make to your estate planning utilising business property relief, contact us today, for a confidential consultation
The Key Benefits of Business Relief Investing:
investments exempt of IHT after two years
retained control, subject to liquidity capital can be accessed if required
ITS investments target annual returns of 3-4%, net of fees
no Capital Gains Tax on death
Risks
Business Relief qualifying investments invest in unlisted trading companies and therefore carry a high degree of risk, these investments are unsuitable for many investors.
Some of the associated risk with Business Relief investing are:
returns are not guaranteed with capital at risk
investments can be difficult to sell
tax legislation can change, and therefore tax relief is not guaranteed
tax reliefs depend on investment companies continuing to meet qualifying requirements and the circumstances of the investor
past performance is not a reliable indicator of future performance
To find out more about how Legacy can help you with Business Property Relief or Inheritance Tax planning, don’t hesitate to contact us for a confidential, no obligation consultation today.