What is Business Property Relief (BPR)?
BPR reduces the value of a business or its assets when working out how much inheritance tax (IHT) is paid on its transfer. This relates to business property owned by someone while they are alive or which forms part of their estate on death.
What is a business?
The meaning of ‘business’ is not defined for IHT purposes, so it has its ordinary meaning, which is a trade or profession carried on for gain.
The definition therefore includes property such as a sole trader's business and a partner's share in a partnership carrying on a business. The property must consist of a business as a whole or a share or interest in such a business.
What is Business Property?
You can get 100% BPR on the following:
• A business or an interest in a business
• Shares in an unlisted company
You can get 50% BPR on the following:
• Shares controlling more than 50% of the voting rights in a listed company
• Land, buildings or machinery which are used in a business which you are a partner in or controlled
• Land, buildings and machinery used in a business and held in a trust that it has the right to benefit from
The Ownership Test
The general rule is that property does not qualify for BPR unless it was owned by the person giving it away or who has died throughout the two years immediately preceding the transfer or death. The nature of the business carried on needn’t be the same throughout the two-year period, but there must have been a business throughout that period.
BPR is not due where the business, or the business carried on by the company, consists wholly or mainly of:
• Dealing in securities, stocks and shares
• Dealing in land or buildings, or
• Making or holding of investments
Businesses concerned with caravan sites, furnished lettings, furnished holiday lettings, and commercial letting can be particularly problematic. The two tests that need to be applied are:
• Whether the activities carried on constitute a business, and
• If they do, is BPR precluded because that business was one of ‘wholly or mainly holding investments’?
If a business is holding surplus cash it must be proven that this is needed for its future use. If not, then it may be classed as an investment so not eligible for BPR. If your business is holding surplus cash it is important to have a business plan which shows what that cash will be used for.
Tax and succession planning with BPR is a specialist area. To discuss your business and whether you are eligible for BPR please contact a member of our Legal Team.