Inheritance Tax Business Property Relief Two Year rule
Inheritance Tax is a tax on gifting on death or within seven years of death or on gifting into a trust.
You should be aware that the scenarios described in this article do not cover all possible inheritance tax planning issues and you should seek our specific advice in relation to your particular circumstances.
Business Property Relief
Business Property Relief provides relief from Inheritance Tax on the transfer of relevant business assets at a rate of 50% or 100%.
100% Relief will be applied to:-
- A business or an interest in a business;
- Unquoted shares, including shares listed on the Alternative Investment Market (AIM); and
- Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company
50% Relief will be applied to:-
- Quoted shares which give control of the company;
- Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership
- Land or buildings, machinery or plant available under a life interest and used in a business crried on by the beneficiary
Relevant property must be held for at least two years in order to qualify for relief. There are some pitfalls and tax planning points:-
- 100% Business Property Relief is given for the transfer of the business as a whole.
- There is no Business Property Relief given for the transfer of land or buildings, machinery or plant used wholly or mainly for the purposes of a sole trader business, except in certain circumstances.
- No Business Property Relief is given on a loan made to a partnership following retirement.
- 100% relief is given for an interest in a partnership, compared to 50% for property held personally and lent to (used by) a partnership.
- The Inheritance Tax laws in Scotland may mean the position is slightly different there.
- No Business Property Relief is given in respect of loans made to a company, such as a credit balance on a directors’ loan account.
- Property which is owned by a shareholder and used by the company will only qualify for 50% Business Property Relief and this is subject to certain conditions.
Business Property Relief is not available in respect of a business, or shares in a company that is:
- Not carried on for gain (not for profit or not on a commercial basis), or
- subject to a contract for sale or being wound up.
There is no Business Property Relief if the business or company is one of “wholly or mainly” in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.
A business which only generates investment income will not attract Business Property Relief, so this excludes:
- A residential or commercial property letting business
- A property dealing businesses
- A serviced office business
Some business activities are borderline: whether they will qualify for relief depends on the nature of services provided, typically these include:
- Holiday businesses
- Property development
- and various other land related activities,
Certain activities are regarded as trading:
- Farming (this is covered by Agricultural Property Relief)
- Woodland management
- Sporting; shooting and fishing
Investments attracting Business Property Relief
Syndicated investment vehicles are available for investment in farming, solar farms, wind farms, forestry and other asset backed trading businesses which qualify for Business Property Relief. We can advise on the tax issues relating to these investments and work with your financial adviser who can assist you on selecting a particular investment.
The information contained in this article is relevant to the date upon which it is distributed; advice given verbally by Wilson Nesbitt is also only relevant to the day upon which it is given. Tax laws change every year and it is the individual responsibility of each Wilson Nesbitt client to ensure that their Will reflects the current legal and tax position. Wilson Nesbitt cannot and do not give any assurance whatsoever that the legal and tax position at the date of death of a client will be the same as at the date advices are given or Wills are executed.
Gilbert Nesbitt & Lenore Rice
Gilbert and Lenore are senior partners of Wilson Nesbitt, solicitors. Gilbert has been a solicitor since 1978 and a partner in the firm since 1982. Gilbert has been a member of the Society of Trusts and Estate Practitioners since shortly after it’s foundation in the 1990s. Lenore has been a solicitor since 2009, a partner in Wilson Nesbitt since 2012 and a member of the Society of Trusts and Estate Practitioners for the last ten years. They share responsibility for the tax, trust, wills and estate administration department of Wilson Nesbitt assisted by six specialists. Either Gilbert or Lenore are happy to have a phone or video call or meet clients face to face (behind Perspex screens) to discuss Inheritance Tax, complex Will planning or other matters in either our Belfast or Bangor offices.
POSTAL WILL OR ENDURING POWER OF ATTORNEY MAKING
We provide you with a free postal information pack on how to make your Wills and Enduring Powers of Attorney by completing and returning a questionnaire to us, receiving draft Wills and Enduring Powers of Attorney from us for you to review, using our phone helpline and then receiving you arer ready to sign Will & Enduring Power of Attorney with instructions on how to sign the documents in accordance with the legal requirements.
Take the next step and call us on freephone number 0800 840 9293 or email Wills@Wilson-nesbitt.co.uk to request a free postal Wills & Enduring Powers of Attorney information pack on how you can use our postal service at little cost to make your Wills, make your Enduring Power of Attorney, gift transfer your property or arrange a phone or video call or face to face (behind Perspex screens) consultation with one of our solicitors on making your Will, Inheritance Tax planning, gifting or other tax planning matters.
See our other articles on Inheritance Tax, Making your Will or Enduring Power of Attorney:-
- Making a Will
- Enduring Powers of Attorney;
- Inheritance Tax Personal Allowances & Exemptions;
- Inheritance Tax Residential Nil Rate Band;
- Inheritance Tax Seven Year Rule;
- Inheritance Tax & Deeds of Variation
- Inheritance Tax Trust & Trustees;
- Joint Tenants or Tenants in Common?
- Reduce Inheritance Tax by Charitable Giving;
- Standard Provisions of the Society of Trust & Estate Practitioners;