Business Property Relief [BPR]

Business Property Relief (BPR) provides relief from Inheritance Tax (IHT) on the transfer of relevant business assets at a rate of 50% or 100%.

Relevant business property comprises of the following types and rates of relief:

• A business or an interest in a business:100%
• Unquoted shares, including shares listed on the Alternative Investment Market (AIM): 100%
• Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company: 100%
• Quoted shares which give control of the company: 50%
• Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership: 50%
• Land or buildings, machinery or plant available under a life interest and used in a business carried on by the beneficiary: 50%

Relevant property must be held for at least two years in order to qualify for relief. There are some pitfalls and tax planning points:-

Sole traders

• 100% BPR is given for the transfer of the business as a whole.
• There is no BPR 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.

Partners

• No BPR 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.

Directors

• No BPR 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% BPR and this is subject to certain conditions.

Business activities
BPR 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 BPR 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 BPR, 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