Posted on: 14th January 2022
If you are in the demographic of owning a business or have an interest in a business, your estate may qualify to reducing inheritance tax.
When you pass away, Inheritance Tax is paid on your estate – which consists of everything you own. At this point, everyone in the UK has an allowance for IHT of £325,000 – also known as the nil-rate band (NHB). If the value of your estate is higher than £325,000 then you will have to pay on the excess.
How it Works
Business property relief comes into benefit with qualifying business assets from IHT while you are still alive or upon your death. This path reduces your business value or assets in the calculation of your IHT liability. This stands if you have owned the business or assets for a minimum of two years before your death.
If you were to pass shortly after acquiring the asset, your estate will not be eligible for the relief – the only exception being if you inherit it from a spouse who also owned it for less than two years. In this instance, the period of ownership is added to your own. If this combined ownership exceeds two years, it provides eligibility for Business Property Relief (BPR).
Businesses That Qualify
Naturally, not every kind of business or interest situation will qualify for Business Property Relief under these scenarios.
BPR qualifies for a certain selection of situations. A qualifying trading business or an interest in one, having shares in an unlisted qualifying company (including minority holding) and shares in a qualifying company that is listed on the Alternative Investment Market (AIM) of the London Stock Exchange is the situation that is tailored towards.
Other areas that are not eligible for BPR are businesses that mainly deal in securities, stocks, buildings and land orholdings. Buy-to-let businesses are treated as businesses and fall into the ineligible category as a result.
Using BPR in Inheritance
Even if you don’t own your own business, business property relief can still play a role in your Inheritance Tax planning by simply investing in a qualifying business.
If you look for alternative ways of effectively reducing your tax liability, investing in a BPR-qualifyingis a sound strategy to add to the consideration pile. Unlike gifting, you find with this route you have full ownership of your money and a greater degree of control.
Investment into BPR-qualifying businesses can also be effective if you look to give the inheritance you plan the opportunity to grow, increasing in value in some cases. As with any, there is never a guarantee – which is why you need to discover its viability with an expert financial planner.
Contact the team at business property relief northwest and reducing inheritance tax.today to discuss