Using Business Property Relief to the Max

Business property relief allows you to move substantial assets to non-exempt beneficiaries (beneficiaries who would usually be subject to IHT) on your death without incurring an IHT bill. You can gift £325,000 from your estate to non-exempt beneficiaries.

Take the example of business owner Sanjit, his sister Jayshree, and her grown-up daughter Meera.

Sanjit dies and leaves Jayshree a home and cash worth £500,000 and a business worth £150,000. As the total value of Sanjit's estate is not worth more than the IHT threshold there is no IHT to pay. Soon after inheriting, Jayshree, who is quite elderly and not up to running the enterprise, sells the business and pockets the money. A year later she dies and Meera inherits everything. IHT is due because Jayshree's estate is worth more than the IHT threshold as she not only had Sanjit's money but her own, around £75,000 to be precise. Crucially, no business assets exist any more for which business property relief would help offset the IHT pain.

What should Sanjit have done? Tax could have been saved if Sanjit had left his cash and home to Jayshree, while leaving those business assets that enjoy 100 per cent BPR to Meera. Meera could sell the business assets she inherited and pocket the cash without fear that the tax-collector would come knocking.

When Jayshree dies, Meera will not have to pay IHT on her estate as Sanjit's business assets had aleady passed to her on his death.

Using Business Property Relief to the Max

If Jayshree had held onto the business assets, then BPR would still have applied. Selling of the assets helped create the IHT problem.

All in all, leaving business assets to your spouse may not be the smartest tax-saving ploy. Gifts to your spouse are automatically exempt from IHT. By gifting your spouse assets that enjoy BPR, you're squandering a major tax-saving opportunity. Where possible, leave exempt assets to non-exempt beneficiaries (in other words, not a spouse, charity, or political party).

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