BPR is a valuable inheritance tax relief, offering up to 100% relief against inheritance tax on qualifying business assets.
You can get 100% Business Relief on:
- a business or interest in a business
- shares in an unlisted company
You can get 50% Business Relief 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
- land, buildings or machinery used in the business and held in a trust that it has the right to benefit from
You can only get relief if the deceased owned the business or asset for at least 2 years before they died.
What follows is a few examples of how the relief interacts and is available to business owners along with a few examples of where care must be taken!
Property held outside a company
Most businesses will typically start life as qualifying trading business or companies for IHT purposes. If the business owner owns 100% of the business premises that the qualifying company operates from and also more than half the company shares, they will get 50% business property relief on the value of the business premises. If the property owners owns less than 50% of the qualifying company they may not get BPR at all.
Presumably then the safe thing to do, from an IHT perspective, is hold the property in the company…….
Property held inside a company
On the face of it holding the premises that the business operates from within the trading company enables the owner to effectively get 100% relief from IHT for the value of the property as opposed to what might be 50% if held outside the company.
However, what if the owner wants to retain the property subsequent to a sale of the business as is often the case? Then the owner might consider a holding company that holds the property. So long as the holding company’s business consists wholly or mainly in being a holding company a trading company or trading group then BPR should be available.
Care must be taken if the commercial property holding company is considerably larger than the smaller trading company it owns then there is a real danger that BPR will not be available. Consider also if the holding company sells the trading subsidiary. The owner is then left with the holding company with a lump of cash in it and a commercial property – BPR won’t be available.
If you have any issues or queries relating to the above please give us a call.