Business Property Relief (BPR) and how it can help save Inheritance Tax

7th May 2024 / Sara Sheppard / No Comments

Business Property Relief (BPR) in the UK is a valuable tax relief designed to support business owners and their families by reducing the burden of Inheritance Tax (IHT). Under Inheritance Tax Act 1984, BPR allows qualifying business assets to be passed on free from IHT either during one’s lifetime or upon death. This relief plays a crucial role in succession planning, particularly for family-owned businesses, by helping to ensure the continuity and sustainability of these enterprises.

The primary purpose of BPR is to prevent the breakup or forced sale of businesses due to the imposition of hefty inheritance taxes. It encourages individuals to invest in and maintain ownership of businesses, fostering economic growth and entrepreneurial activities. BPR applies to a wide range of business assets, including shares or securities in unquoted trading companies, partnerships, and relevant property used in a business.

One of the key criteria for qualifying for BPR is that the business assets must have been owned for at least two years prior to the transfer, whether it’s through lifetime gifts or in a will. Additionally, the business must be considered a trading business rather than an investment business, meaning it must be actively engaged in trading activities rather than primarily holding investments. 

For shares in unquoted trading companies, BPR typically provides a 100% relief, meaning the full value of these shares can be passed on free from IHT. This can be a significant advantage for business owners, as it allows them to transfer ownership to their heirs without the risk of depleting the value of the business through taxation.

In the case of land, buildings, or machinery used in a business, BPR provides relief of up to 100% if they are essential to the operation of the business. However, if these assets are not actively used in the business, they may only qualify for a partial relief of 50% or none at all, depending on the circumstances.

It is important to note that BPR is subject to certain restrictions and conditions. For example, assets held mainly for investment purposes, such as stocks and shares not related to trading activities, do not qualify for relief. Similarly, businesses engaged in certain excluded activities, such as property development or letting of commercial properties, may not be eligible for full relief.

Furthermore, the availability of BPR can be complex and may require professional advice to navigate effectively. HM Revenue & Customs (HMRC) scrutinises claims for BPR carefully to ensure they comply with the relevant legislation. It is therefore essential for business owners to seek expert guidance to ensure they structure their affairs in a way that maximises the benefits of this relief while remaining compliant with the law.

BPR is a valuable tax relief that can significantly reduce the impact of Inheritance Tax on business assets in the UK. By providing relief on qualifying business assets, BPR encourages entrepreneurship, supports succession planning, and helps preserve the legacy of family-owned businesses. However, navigating the complexities of BPR requires careful consideration and professional advice to ensure compliance and optimise the benefits for business owners and their heirs.

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