Business Property Relief (BPR) is a valuable relief which allows a business owner to reduce or negate the Inheritance Tax payable on transfers of their business assets.
Qualifying business assets attract BPR at a rate of either 50% or 100% and these discounts are available regardless of whether assets are transferred during the business owner’s lifetime or upon death by their Will. With Inheritance Tax payable upon death at a flat rate of 40% on the value of an estate above £325,000 – excluding the newly introduced Residential Property Allowance – every business owner should consider whether they can use BPR to their advantage.
Recent studies suggest that as few as 10% of business owners have a formal written succession plan in place. Moreover, whilst 38% have an informal strategy in mind, the remaining 52% have nothing at all. By failing to examine the availability and fine-print of BPR, however, business owners are denying themselves, and their heirs, the fruits of the potential savings on offer.
For example, the owner of more than half the shares in a company who also owns the premises used by that company would be entitled to receive 50% BPR on those premises. If, however, the premises were to be held by the company itself, 100% BPR would be available. Likewise, a sole trader might discover that they are able to increase the rate of BPR available to them on business premises from 0% to 100% by settling those premises into a trust.
It is also important to consider the ongoing availability of BPR in the context of how a business evolves as it matures. Not all business pursuits qualify for BPR, for example a property rental business; this can lead to situations where all BPR is lost, even though part of a business – when examined in isolation – would have qualified. Business owners should also be aware that, of the assets owned or acquired by their businesses, only those which are required for trade or future investment attract BPR.
For further advice on this issue contact the Private Client department.