Business Property Relief (BPR) is a valuable relief from inheritance tax. As part of our Wills for Business Owners series, this article summarises the criteria for qualifying for BPR.
Business Property Relief was introduced to help protect businesses from having to be sold on the death of a shareholder or partner in order to pay the inheritance tax that would otherwise be due. A well drafted Will can therefore ensure that the full benefit of the relief is claimed.
The aim of this article is to provide a useful starting point to help you consider whether the relief may apply to your circumstances.
Do I qualify for Business Property Relief?
It’s important to first note that the legislation which defines Business Property Relief and the case law which has developed the definition is expansive and complex. We would strongly recommend getting specific advice in order to be confident that BPR is available for you.
Business Property Relief applies to relevant business property.
To qualify as relevant business property an asset must:
- Be within one of the defined categories of assets;
- Have been owned for the minimum period of ownership; and
- Not fall within one of the exclusions set out in the legislation.
Please see the sections below for further information on each of these criteria.
What are the prescribed categories of assets?
Assets which are capable of qualifying as relevant business property, subject to satisfying the other requirements, include unquoted shares and shares in partnerships. Business Property Relief would be available for these assets at a rate of 100%.
The prescribed categories of assets also include assets that are owned by a shareholder or partner personally, but are used by the business. This could include the business’ premises, land, or machinery. Normally, BPR is only available for these assets at a rate of 50%.
What is the Minimum Period of Ownership?
The general rule is that you must have owned the property throughout the two years before the date of the transfer in order to meet the minimum period of ownership requirement.
However, there are some exceptions to this. For example, when someone dies and leaves business assets to their surviving spouse, they are treated as having owned the assets from the date their deceased spouse acquired them, not the date they inherited them.
What are some of the exclusions for Business Property Relief?
There are a range of exclusions which prevent an asset qualifying for BPR.
For example, the business must not have consisted wholly or mainly of dealing in land or buildings, or making or holding investments. Therefore generally a furnished holiday letting business would not qualify for BPR.
However, determining what “wholly or mainly” means is a complicated task. There are also exceptions to the exclusions, as property developers, despite mainly dealing in land or buildings, can still qualify for Business Property Relief.
Given that BPR can provide such a substantial inheritance tax saving and the requirements for qualifying for the relief are full of exclusions and exceptions, it is very important that business owners seek advice to determine whether BPR will be available to them.
If you own an interest in a business it is important that you check that your Will is drafted in the way that makes best use of this valuable relief. You may also benefit from reading our previous articles in the series, which suggest what business owners should consider when writing a Will and offer example business scenarios that we have seen covered in Wills.
If you have any questions about Business Property Relief, our Private Client team would be happy to assist you, both in relation to the availability of BPR and how to make the most of the relief in your circumstances. Please do not hesitate to get in touch.