Winning the Tax War with Business Property Relief

When you die, your estate is assessed to see if inheritance tax is due on it. Any assets over £325,000 in the 2009/10 tax year attract IHT at 40 per cent. If you own a business, or share of a business, then these assets can be included in your estate for IHT pur don't plan and those closest to you have to find the money to pay an IHT bill on your death, they may have to sell the business or some other asset – even the family home – to raise the money needed to meet the tax bill.

However, you can use a major weapon available for business people. Drum roll, please: Business property relief (BPR).

Business property relief allows you to pass on some – but not all – of the assets of a business free of IHT. This relief means that business assets enjoy a much better deal from HMRC than everyday assets like a house, car, or cash in a savings account.

The reason for the relief is pretty obvious. HMRC recognise that, unlike other assets, a successful business plays an important role in the economy and the community – it keeps people employed, who pay taxes, as does the business itself. HMRC doesn't want to kill the goose that lays the golden egg by imposing a stiff IHT charge on business assets when the owner dies.

One hundred per cent BPR is available on:

Winning the Tax War with Business Property ReliefA 100 per cent-owned business or share of a partnership

Winning the Tax War with Business Property ReliefShares in an unquoted trading company – this means a company that is incorporated but isn't large enough to be listed on the London Stock Exchange

One hundred per cent does exactly what it says on the tin and means that the asset is completely free from IHT.

Winning the Tax War with Business Property Relief

One hundred per cent BPR is not available on shares in quoted companies. Shares in quoted companies – the BPs, Tescos, and ICIs of this world – are treated in a very similar way to cash or property. However, relief is available on business property held overseas.

Fifty per cent BPR is available on land, buildings, plant, and machinery owned by an individual but used for business purposes by a company in which the individual has full control or a partnership interest in.

Fifty per cent BPR means that half the value of the asset can be passed on free from IHT.

The deceased must have owned the business for at least two years prior to death for it to attract relief.

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