Peterborough office
48 Broadway, Peterborough Cambridgeshire, PE1 1YW
01733 346 333 01733 562 338 enquiries@hegarty.co.ukStamford office
10 Ironmonger Street, Stamford Lincolnshire, PE9 1PL
01780 752 066 01780 762 774 enquiries@hegarty.co.ukOakham office
66 South Street, Oakham Rutland, LE15 6BQ
01572 757 565 01572 720 555 enquiries@hegarty.co.ukMarket Deeping office
27a Market Place, Market Deeping, PE6 8EA
01778 230 120 01778 230 129 enquiries@hegarty.co.ukBusiness Property Relief can provide a percentage reduction in the net value of relevant business property for inheritance tax purposes.
The relief can be claimed on transfers of certain types of business and business assets if they qualify and the person transferring them (‘the transferor’) has owned them for a minimum period.
The relief can be claimed in lifetime and on death.
Where the conditions are met it reduces the value of any gifts of business property made by a person (the ‘transferor’) during lifetime or on death for the purposes of any Inheritance Tax due. If the transferor dies within seven years of making a gift then certain other conditions need to be fulfilled for Business Property Relief to apply.
The 100% rate applies to the categories numbered 1, 2 & 3 above with categories numbered 4, 5 & 6 attracting the lower 50% rate.
The relief is available on the value transferred that is, wholly or in part, attributable to relevant business property. The value is reduced before any claim to any exemption that might make the transfer either wholly exempt or partly exempt.
The lower rate generally applies where the asset does not appear on the balance sheet. For example, the premises from which a business trades may be owned by one partner of a partnership rather than by all the partners.
In essence, the transferor must have owned the asset for two years prior to the transfer. There are exceptions to this rule which are outside the scope of this guide.
‘Business’ is not defined anywhere in the Inheritance Tax legislation which is problematic. It has been confirmed through case law that it is more than just a ‘trade’.
The business must be carried on for gain. However, if the business consists of dealing in stocks and shares, securities, land or making or holding investments, the business will not qualify for Business Property Relief.
In order to have control of a company the transferor must be able to control the powers of voting on all matters affecting the entire company.
Quoted means quoted or listed on a recognised stock exchange. Unquoted therefore means not listed on a recognised stock exchange.
A recognised stock exchange does not include AIM (Alternative Investment Market) shares. AIM shares generally qualify for Business Property Relief provided that they are trading companies who do not trade in any prohibited activities described overleaf.
There are several qualifying conditions:
An asset here will not qualify unless used for business purposes throughout the qualifying period required.
The Inheritance Tax legislation does not define machinery or plant. It includes assets treated as such for Income Tax purposes. Plant does not include stock-in-trade.
In order for this category to qualify the transferor must have an “interest in possession”. This is a rarely used category.
Business Property Relief was always intended to save a business from having to be sold to pay any Inheritance Tax. If there is a binding contract for sale, for example an arrangement between partners that on the death of any of them the surviving partners must buy out the deceased partner’s share.
The existence of such a contract will destroy the availability of Business Property Relief. This is a complex area upon which professional advice is highly desirable to ensure succession planning can be put in place without destroying the availability of Business Property Relief.