Business property relief is a very valuable relief that allows certain business assets to be passed on free of inheritance tax. Other business assets qualify for 50% reduction.
On death, in the absence of business property relief, a business will be chargeable to inheritance tax. Where business property relief applies, the value of the business assets are still included in the estate, but they are reduced by the amount of the relief, which is given at either 100% or 50% of the value of the assets transferred. The extent of the relief depends on the nature of the business asset.
The following assets constitute relevant business property, which qualifies for 100% relief:
- property consisting of a business or an interest in a business;
- any unquoted shares in a company; and
- shares or securities of a company which are unquoted and which (either by themselves or when taken together with other such securities owned by the transferor and any unquoted shares so owned) gave the transferor control of the company immediately before the transfer.
For business property relief purposes, shares which are quoted on the AIM, OFEX, EU Junior or the NASDAQ Europe markets are treated as unquoted.
Business property relief is also given at 50% in respect of the following
- shares or securities in a company which are quoted and which (either by themselves or together with other such shares or securities owned by the transferor) gave the transferor control of the company immediately before the transfer;
- any land or building, machinery or plant, which immediately before the transfer was used wholly or mainly for the purposes of a business carried on by a company of which the transferor then had control or by a partnership of which he was then a partner; and
- any land or building, plant or machinery which immediately before the transfer was used wholly or mainly for the purposes of a business carried on by the transferor and which was settled property in which he was then beneficially entitled to an interest in possession.
Certain exclusions apply which prevent business assets falling within the above from being relevant business property qualifying for business property relief. Relief is denied if:
- the business comprises wholly or mainly in dealing in securities, stocks or shares, land or buildings or the making or holding of investments; or
- a winding up order had been made at the time of the transfer or if the business is otherwise in the process of liquidation (unless the business is to continue after a reconstruction or amalgamation of which the winding up or liquidation is a part).
Land and buildings, machinery and plant owned by the transferor are only relevant business property if immediately before the transfer the transferor’s interest in or shares and securities of the company are also relevant business property.
In addition, to qualify for business property relief, assets must have been used for the purposes of the business for a continuous period of two years prior to the transfer (although replacement assets may qualify).
Need to know
Business assets only qualify for business property relief is they are relevant business property and all other conditions for relief are met.
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