Save Inheritance Tax with Business Property Relief (BPR)

By Kate | March 24, 2023

Have you considered Business Property Relief (BPR) in your Inheritance Tax (IHT) planning? BPR allows you to claim IHT relief of either 50% or 100% on the value of your business or its assets, including qualifying shares. These can be passed on either while you’re alive, or as part of your Will. In this article, we’ll give an overview of Business Property Relief, and show how it can be used for IHT purposes. Carry on reading to find out more, or contact us today for professional advice.

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How Does BPR Work with Inheritance Tax?

Do you own a business, or an interest in one? If so, you could reduce Inheritance Tax owed on your estate through Business Property Relief.

Currently, everybody in the UK has Nil-Rate Band (NRB) of £325,000, and an additional Residential NRB (RNRB) of up to £175,000 (if available) for IHT purposes. But, once the value of your estate – which consists of everything you own – exceeds the NRB and RNRB where a relief isn’t available, IHT will be paid on the excess after you’ve passed away.

With BPR, the value of your business or its assets will be reduced when calculating your IHT liability. There are also other tax reliefs available to reduce Inheritance Tax, such as Agricultural Relief (APR).

Are You Entitled to Business Property Relief?

To receive Business Property Relief, you must have owned your business or its assets for at least two years before you pass away.

Assets acquired beyond that timeframe won’t be eligible for tax relief, unless inherited from your late spouse. If they also owned assets for less than the required two years, your period of ownership will be added to theirs – if this exceeds the two year requirement, you will then qualify for BPR.

If assets qualify for APR, you can then claim BPR on the remaining amount after the APR has been deducted – if they qualify.

What Qualifies for BPR?

BPR is available for the following types of business or interest:

A qualifying trading business, or an interest in one
Shares in an unlisted qualifying company, including a minority holding
Shares in a qualifying company listed on the Alternative Investment Market (AIM) of the London Stock Exchange.

What Doesn’t Qualify for BPR?

Business Property Relief isn’t available for the following companies:

Those that mainly deal with securities, stocks or shares, land or buildings, or in making or holding investments
This means that buy-to-let (BTL) investors, and most furnished-holiday-let (FHL) investors, do not qualify, as their businesses are treated as investment businesses. However, if the FHL is run like a B&B or hotel, then it will qualify.
Not-for-profit organisations
Companies under sale, unless being sold to a company that will continue the business, and the estate will be paid mainly in the shares of that business
Those that are being wound up, unless part of a process to allow the business of the company to continue.

In terms of business assets (property and buildings, unlisted shares, and machinery), you can’t claim BPR on them if they:

Weren’t used mainly for business purposes in the two years prior to being passed on as a gift or as part of your Will
Aren’t necessary for future business use.

However, if part of the above assets are used in the business, that part might qualify for Business Property Relief.

How Much Business Property Relief is Available?

BPR for IHT purposes is available at either 50% or 100%, and depends on the type of business assets you own. The market value of the business or asset must be used when calculating relief at 50%.

50% tax relief is available for:

Shares that control over half of the voting rights in a listed company
Land, buildings or machinery you owned before you passed, and were used in a business where you were a partner, or had significant control
Land, buildings or machinery used in the business, and held in a trust where the business has the right to benefit.

100% tax relief is available for:

A business or interest in a business
Shares in an unlisted company.

If you’d like some help understanding what’s available to you, please speak with one of our experts today.

How to Claim BPR

Business Property Relief is claimed when your Will’s executor, or estate’s administrator, is valuing your estate. They should complete the following forms:

Form IHT400 (Inheritance Tax account)
Schedule IHT413 (Business or partnership interests and assets)

Please note that HMRC assesses BPR on the estate after you, the owner, have passed away – as such, relief entitlement will depend on the business assets maintaining their qualifying status at that time.

Inheritance Tax Planning – Investing in a Qualifying Business

BPR can play a key role in reducing your Inheritance Tax bill during your lifetime. One area to consider is investing in a qualifying business, even if you don’t own it.* Doing so may give you greater control over your money, and means that you will retain ownership.

An investment that qualifies for Business Property Relief will be exempt from IHT after only two years, as opposed to seven years with gifts – but you must have held the investment for at least two years when you pass away.

You could also set up an investment fund, e.g., through Octopus, which invests in companies that they expect to qualify for BPR on your behalf.

There’s always the potential for the qualifying investment to grow in value, but as with any investment, there are no guarantees, particularly with unlisted or AIM-listed businesses, which are considered as higher-risk investments. If they do fall in value, they can be difficult to sell, and you may not get back what you invested.

You also need to be aware that tax rules and reliefs are constantly subject to change, and companies that qualify for BPR today may not qualify for BPR in the future.

*Please be aware that we are not IFAs, and cannot advise on investments.

Need Help with BPR for Inheritance Tax Planning?

Business Property Relief is a powerful, but complex, IHT planning tool that requires professional advice. Our team has a wealth of experience in Inheritance Tax and Estate Planning, and will guide you through whether BPR is right for you. If you’d like to find out more, you can message us through our online form, call 01743 562430, or email hello@mercianaccountants.co.uk.