Business Property Relief

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:

• The asset must be used wholly or mainly for the purposes of a qualifying business
• The business must be carried on by either:
  • A company controlled by the transferor; or
  • A partnership of which the transferor was a partner at the time of the transfer
• The asset does not qualify for relief unless the relevant business also qualifies for Business Property Relief

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.