Business Property Relief as part of an estate planning strategy

In the third of our articles about Business Succession Planning we talk about Business Property Relief (BPR) and how this tax efficient mechanism forms an important part of supporting your clients future business needs.

BPR is a form of inheritance tax relief, and it can often be a valuable business succession planning tool for reducing any IHT that is payable on transfers of relevant business property in an individual’s lifetime or when they die. If suitable then BPR can reduce the taxable value of the transfer by 50% or 100%, depending on the type of property transferred.

Why conduct a BPR check with your clients?

For those clients that own their own business, then conducting a BPR check with them can ensure they have the right arrangements in place to plan for the future in order to qualify for 100% BPR on the transfer of a business interest in life or death.

Supporting your client with their BPR needs will help ensure they can retain long-term control over their business to help ensure it is transferred to the right person in a tax efficient manner. A Business Trust can be incorporated in to a clients’ Will to help ensure the available BPR on death is used in the way desired.

BPR Considerations

The key considerations for BPR is the business type – essentially of the business is a trading (the business must be ‘wholly or mainly’ trading to qualify) or an investment business.

An investment business, so those who deal in securities stocks or shares, land, buildings or make or hold investments, are not eligible for BPR. Neither are those businesses that are listed on the main stock exchange.

On the other hand, BPR is a consideration for:

• Sole traders
• Partners of members
• shareholders

So the nature and type of business is the first consideration, the ownership period is another.

A business will qualify for BPR when the individual or trust has owned it for at least two years, although there could be some scenarios whereby BPR could be available before then:

• If a couple own the business and a spouse dies and transfers ownership, then the period of that ownership may be combined
• If there has been two consecutive transfers, one of which on death and the first transfer was eligible for BPR
• If the business property has been sold and then replaced within three years, then BPR may be possible if both properties (assets) were owned for two of the five years.

Also to note, HMRC may deny BPR if a binding contract for sale is in place, which could be specified within the partnership or shareholders’ agreement should the individual die. The use of cross-options, which give each interested party an option to buy or sell the asset, may be used instead.

Tax rules could obviously change at any point and there cannot be any guarantee that companies that qualify today will remain BPR qualifying in the future.

If you or your clients have any questions regarding their business succession and property relief then just get in touch – call 01522 500823.