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What is Business Property
Inheritance Tax

For those who own a business or a business interest, your business may claim relief through Business Relief Inheritance Tax. The BR lowers your business value when calculating the amount of Inheritance Tax to be paid.

Business Property Relief is a great relief that lowers your asset's taxable value to almost nil.

What is Business Property Inheritance Tax?

Functioning Of Business Property Relief (BPR)

Inheritance tax is the estate tax paid after a person dies. Everything a person has owned is included in the estate. The Inheritance tax allowance is £325,000, also called the Nil-Rate Band. If your estate value is more than this amount, you should pay inheritance tax on the remaining amount.

Business Property Relief helps business assets qualify for IHT, either when alive or after your death. During the Inheritance Tax liability calculation, such tax relief lowers your business value or asset value.

To get BPR, you should be the owner of a business or business assets for two years before your expiry. So, if someone has passed away shortly after acquiring an asset, they may not be eligible for the relief. The only exception that applies here is that if the asset is inherited from your spouse, they have also owned it for a period lower than two years. Under such a condition, your ownership period is added to the late spouse's ownership period. If the totalled period of ownership surpasses two years, you can apply for BPR relief.

Who Qualifies For Business Property Relief?

A person can receive 100% Business Relief on:

  • A business or business interest.
  • Shares in the unlisted firm.

A person can receive 50% Business Relief on:

  • Shares with over 50% of the voting rights in a listed firm.
  • Property, machinery possessed by the deceased and used in a business they controlled or partnership with.
  • Real estate or property utilised in the business and owned in a trust that it can benefit from.

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.

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.

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.

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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