Succession Planning for Business Owners
Business Property Relief (BPR) is an important way to soften the impact of Inheritance Tax (IHT) on estates which include business assets, offering potentially a 0% Inheritance Tax rate. This is a relief specifically for trading businesses, including business property, business interest or other business asset when it is passed on to a beneficiary, either in life or death. When available, BPR applies at a rate of either 100% or 50% Inheritance Tax relief.
If an estate’s business assets are not planned adequately, beneficiaries will be required to pay 40% inheritance tax on the total value of the business assets when you die.
Who is BPR for?
Business Property Relief may be a useful business and inheritance planning tool for the following types of individual:
- Sole traders
- Business partners
If you fall into one of the above categories and have been the owner of a relevant business property interest for two years or more, you may be entitled to claim 100% BPR.
100% or 50% Business Property Relief
The following asset types may all qualify for 100% BPR:
- A trading business or an interest in a trading business
- Unquoted securities which alone or together with other unquoted shares or securities give you control of an unquoted company
- Unquoted shares. This includes shares listed on the Alternative Investment Market (AIM)
The following asset types may qualify for 50% BPR:
- Land or buildings, machinery or plant used largely for the purposes of the business carried out by a company or partnership or sole trader trading enterprise
- Land or buildings, machinery or plant available under a life interest and used in a trading business carried on by the beneficiary
- Quoted shares which give control of the company
When is BPR not applicable?
Business Property Relief does not apply to all businesses. As such, BPR is not given to businesses whose activity largely consists of the following:
- Making or holding investments
- Securities, stocks, shares, land and buildings
- Residential or commercial property letting
- A serviced office business
Excepted assets – these are assets not used for trading or investment business purposes (surplus cash is the most common example) and can disqualify all other qualifying business assets. It can sometimes be a fine line between being a BPR eligible entity and one that is not. Businesses should take care to ensure that significant sums of cash do not remain on deposit
for extended periods rather than being reinvested into a relevant business property.
In many cases a business’s entitlement to BPR may depend on the precise nature of the service involved – legal advice should be sought in these instances. Common borderline examples including the following:
- Holiday businesses
- Property management
- Mixed estates of farming and letting
- Some caravan parks
BPR for agricultural property
When certain agricultural property is not eligible for Agricultural Relief it may be possible to seek Business Property Relief. Speak to our solicitors today for guidance.
Protecting your assets with a Business Property Relief Will
Estate management and inheritance tax planning can be complex and onerous. However, one thing is certain: the sooner you begin a plan of action, the more likely it is that your wishes will be carried out after death and the easier the process of estate administration is likely to be for your beneficiaries.
This is particularly true for business owners and shareholders who will have assets that a simple, joint or mirror Will cannot provide for efficiently. The impact of the testator’s death on business assets can be complex and costly if the assets aren’t considered by a specialist. Simply leaving it to your spouse could cause the relief to be lost in certain circumstances. You also need to consider how you pass or sell an interest on death to your remaining business partners without losing your Business Property Relief.
By making a Business Property Relief Will with the experts at Wellers, you can plan for the future of your business as well as any surviving business partners, your spouse or partner, children and any other beneficiaries you would like to include in your Will.
Wellers can help you plan so that any eligible assets receive the maximum Business Property Relief (BPR) to which they are entitled, allowing you to pass them on to your beneficiaries with the minimum of Inheritance Tax (IHT) liability.
If you are a partner in a partnership, a sole trader or you own shares in a private company, you may be able to gift your business assets free of inheritance tax via BPR. Similarly, if you wish to pass on a family business free of inheritance tax, we can help you plan accordingly.
We can also help you create a Business Will Trust to ensure that the assets continue to qualify for the remainder of the beneficiary’s life.
Our specialists can help you plan in this regard, ensuring that your wishes and your strategies are enshrined in your Will.