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What is Business Property Inheritance Tax

Business Property Relief (BPR) is a valuable tax relief in the UK that helps reduce the inheritance tax (IHT) payable on certain business assets. It is designed to support business owners by allowing them to pass on their businesses without having to sell assets to cover tax liabilities. BPR applies to both lifetime gifts and transfers on death, making it an essential tool for estate planning.

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What is Business Property Relief?

Business Property Relief (BPR) is a tax relief that reduces the value of business assets for inheritance tax purposes. It offers two levels of relief:

  • 100% Relief: Applies to businesses or interests in businesses, and shares in unlisted companies. This means these assets can be passed on completely free from inheritance tax.
  • 50% Relief: Applies to shares controlling more than 50% of the voting rights in listed companies, and land, buildings, or machinery used in a business.

Key Points to Note:

  • Ownership Requirement: Assets must be owned for at least two years before death to qualify.
  • Qualifying Assets: Includes trading businesses, unquoted shares, and certain business property.
  • Non-Qualifying Assets: Excludes companies mainly dealing in investments or being sold/wound up unless part of a business continuation process.

Which Business Assets Qualify for Business Relief?

To qualify for business relief inheritance tax, the business or asset must have been owned for at least two years before the transfer. The main assets that qualify include:

  • A business or an interest in a business (100% relief)
  • Shares in an unquoted company (100% relief)
  • Shares in some AIM-listed companies (100% relief)
  • Shares controlling more than 50% of the voting rights in a listed company (50% relief)
  • Land, buildings, machinery, or plant used in the business (50% relief)

Assets that do not qualify include companies mainly dealing in investments, stocks, or land held for investment purposes, as well as not-for-profit organisations.

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Who Doesn’t Qualify For Business Relief?

A person is not entitled to Business Relief if the company:

  • Majorly deals with stocks, shares, lands, and buildings or investments.
  • Is a Non-Profit Organization.
  • It will be put on sale in the future unless the sale will continue on the business, and the estate will be evident in the company’s shares.
  • It is being curled up only if it is a part of the procedure to allow its business to run.

Business Relief Cannot Be Claimed On An Asset When:

  • It is applicable for agricultural relief.
  • The estate hasn’t been used for business in the past two years before being passed as a gift.
  • The business will not use it in the future.

If a non-qualifying real estate is used in the business, that asset may qualify for Business Relief.

For instance, if one room in a property is used as a store while the other rooms are used to live, the shop will be eligible for Business Relief, while the rooms won’t.

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How to Claim Business Property Relief

When valuing an estate for inheritance tax business relief, the executor or administrator completes forms IHT400 and IHT413. The market value of the business or asset is used to calculate the relief. It is important to provide evidence that the business or asset has been owned for the required two-year period.

Agricultural Property Relief

You may get Business Property Relief on an agricultural asset that isn’t qualified for agricultural relief.

Steps To Claim BPR Relief

As the will’s facilitator or estate manager, you are eligible for Business Property Relief when you value the estate.

Two forms are filled out for this:

You should assess your business’s or asset’s market value when the relief is calculated at 50%. It’s claimed on machinery, unlisted shares, buildings, and other properties. One can claim it after the owner’s death. Moreover, the claim depends on your business assets with BPR qualifying status.

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Use BPR In IHT Planning

Business Property Relief plays a significant role in Inheritance Tax, even if you are not the business owner. Even investing in an eligible business will help reduce your IHT bill effectively.

For instance, if you don’t want to give a big part of your money during your lifetime to lower your Inheritance tax liability, investing in a BPR-eligible investment could prove to be an effective IHT strategy. The strategy gives you better control over your money. Dissimilar to a gift, you get your money ownership.

Another condition where BPR is helpful from an Inheritance tax perspective is where you’d want your wealth to get exempted from IHT sooner. Dissimilar to trusts and gifts that usually take seven years before being exempted from IHT, BPR-eligible investments are easily exempted from IHT in mere two years, provided they were in possession for two years after the death.

Any investment done in BPR eligible business is also an efficient plan to offer the inheritance you want and allow it to grow. A BPR-eligible investment has the power to rise in value. However, no other investment offers such a guarantee.

Risks To Keep In Mind

You should be concerned about some risks with Business Property Relief.

When you invest in a Business Property Relief eligible estate, you put your capital at risk. Some BPR eligible assets like unlisted or AIM-listed ventures suffer higher risk. These investments can depreciate and may be tough to sell. Sometimes the investor doesn’t get the amount they invested.

Another risk that you should know about is that tax rules and relief may alter. There is no specific guarantee that companies qualifying today for the relief may qualify in the future too.

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Planning to Maximise Business Relief

Business owners can take steps to ensure their assets qualify for business relief for inheritance tax:

  • Hold business assets for at least two years before transfer
  • Structure the business to focus on trading activities rather than investment
  • Avoid winding up or selling the business unless the sale continues the business in a qualifying company
  • Keep clear records of business use for land or machinery

Planning ahead can help reduce the potential limited company inheritance tax liability and protect the value of the business for future generations.

Common Mistakes to Avoid

  • Assuming all shares qualify for 100% relief, when some listed shares only get 50%
  • Not meeting the two-year ownership requirement
  • Holding excessive cash or non-business assets within the company, which do not qualify
  • Failing to claim relief correctly on the tax forms
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Recent and Upcoming Changes to Business Property Relief

From April 2026, changes to business inheritance tax rules will limit the amount of relief available. The first £1 million of qualifying assets will receive 100% relief, but any amount above that will only get 50% relief. This means some business owners will face higher IHT bills unless they plan carefully.

Conclusion

Business Property Relief is a robust and efficient tax relief form that you shouldn’t ignore. A reliable Inheritance Tax planning tool offers relief of around 100% after the owner passes away.

As with all fields of taxes, Business Property Relief is a complicated zone. If you are planning to use it for your estate planning, it is essential to seek the help of a financial adviser in this regard. The experience, expertise, and robustness of an adviser can help you enhance your benefits of Property Business Relief on your Inheritance Taxes and the monetary safety of your dear ones. So, consider all the benefits and risks associated with it before concluding.

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