Published on: 17th January 2022

Business Property Relief - A Crash Course

Introduced in 1976, Busines Property Relief is a relief that can reduce the value of a business (or its assets) when determining Inheritance Tax (IHT) liabilities. As any ownership or shares in a business must be included in the estate of the deceased for IHT purposes, Business Property Relief can play a major role in IHT planning.

If you own a business or have an interest in a business, your executors (also known as personal representatives) may be able to apply for Business Property Relief. Every individual has an IHT allowance which is currently £325,000, known as the Nil Rate Band (NRB). If the value of your estate is higher than the NRB, IHT at 40% may be due on the excess, depending on your personal circumstances. Business Property Relief may enable the value of business assets to be reduced for IHT purposes.

Relief may be available at either 100% or 50% depending on what type of business assets you own.

Your executors may be able to claim 100% relief on:

• A business / interest in a business
• Shares in an unlisted company

Your executors may be able to claim 50% relief on:

• Shares that give you control of more than 50% of the voting rights in a listed company
• Property or machinery owned by the deceased and used in the business they controlled
• Property or machinery used in the business and held in a trust from which it has the right to benefit

Please note that Business Property Relief does not apply to businesses that mainly deal in securities, stocks, land, or buildings. As such, this relief does not apply to buy-to-let investors.

Unlike traditional gifts and trusts which take seven years before they are fully exempt from IHT, for your executors to claim Business Property Relief, you must have owned your business or business assets for two years or longer before your death. The only exception to this rule, however, is if you inherit the business asset from your spouse who also owned it for less than two years. In this case, the total period of ownership between you and your late spouse is combined. If this combined total is over two years, your executors may be able to claim Business Property Relief.

To claim Business Property Relief, the executors of the estate must complete an IHT400 form and if the estate includes a qualifying business asset, an IHT413, as well. These forms must be submitted to HMRC as part of the estate valuation.

If you own a business and would like to consider what your IHT implications could be during your estate planning, consider booking a consultation with one of our friendly and knowledgeable consultants by calling 01732 868190 or using our online form by clicking here.

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