How business property relief works

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Inheritance Tax is the tax paid on your estate after you have passed away. Your estate consists of everything you own. Every person in the UK currently has an IHT allowance of £325,000 – this is known as the nil-rate band (NRB). If the value of your estate is higher than this figure, you will need to pay IHT on the excess.

With Business Property Relief, qualifying business assets from IHT either while you are still alive or upon your death. This form of tax relief reduces the value of a business or business assets in the calculation of your IHT liability. Therefore, it is a way you can avoid paying inheritance tax.

a property with business property relief

What businesses qualify for Business Property Relief?

To receive BPR, you must have owned the business or business assets for at least two years before your death. So, if you pass away shortly after acquiring the asset, your estate won’t be eligible for the relief.

The exception here is if you inherit the asset from your spouse, who also owned it for less than two years. In this scenario, your period of ownership is added to that of your late spouse. If the combined period of ownership exceeds two years, you will be eligible for BPR relief.

Inheritance Tax is the tax paid on your estate after you have passed away. Your estate consists of everything you own. Every person in the UK currently has an IHT allowance of £325,000 – this is known as the nil-rate band (NRB).

If the value of your estate is higher than this figure, you will need to pay IHT on the excess.

What assets qualify for business property relief?

With Business Property Relief, qualifying business assets from IHT either while you are still alive or upon your death.

This form of tax relief reduces the value of a business or business assets in the calculation of your IHT liability.

To receive BPR, you must have owned the business or business assets for at least two years before your death. So, if you pass away shortly after acquiring the asset, your estate won’t be eligible for the relief.

The exception here is if you inherit the asset from your spouse, who also owned it for less than two years. In this scenario, your period of ownership is added to that of your late spouse.

If the combined period of ownership exceeds two years, you will be eligible for BPR relief.

A building with business property relief

How much inheritance tax is available?

Inheritance Tax is the tax paid on your estate after you have passed away. Your estate consists of everything you own. Every person in the UK currently has an IHT allowance of £325,000 – this is known as the nil-rate band (NRB). If the value of your estate is higher than this figure, you will need to pay IHT on the excess.

With Business Property Relief, qualifying business assets from IHT either while you are still alive or upon your death. This form of tax relief reduces the value of a business or business assets in the calculation of your IHT liability.

To receive BPR, you must have owned the business or business assets for at least two years before your death. So, if you pass away shortly after acquiring the asset, your estate won’t be eligible for the relief.

The exception here is if you inherit the asset from your spouse, who also owned it for less than two years. In this scenario, your period of ownership is added to that of your late spouse. If the combined period of ownership exceeds two years, you will be eligible for BPR relief.

How to Claim BPR Relief

To claim Business Property Relief, it is necessary to meet specific criteria and navigate through eligibility requirements. The following key aspects are vital for initiating the process:

You may be able to use Qualifying assets. BPR applies to eligible business assets, such as property, shares, and unquoted stocks, held for a minimum of two years before becoming eligible for relief. 

This is great because you can use the assets as something that will be exempt from tax in the future

Ownership Structures: Different ownership structures, including sole proprietorships, partnerships, and shares in unquoted trading companies, can impact the availability and level of BPR relief.

Professional Advice: Seeking guidance from tax experts or solicitors specialising in inheritance tax planning is crucial to ensure compliance and maximise the potential benefits of BPR.

Business property relief in South London

Risks to Consider

While Business Property Relief offers substantial benefits, it is essential to be mindful of potential risks associated with this relief, including:

Legislative Changes: Tax legislation is subject to amendments, and eligibility criteria for BPR relief may change over time. Staying informed and seeking professional advice are crucial in navigating potential legislative risks.

Business Viability: BPR relies on assets meeting qualifying criteria as a trading business. The ongoing viability and trading activities of the business must be carefully assessed to ensure continued eligibility for BPR relief.

Conclusion

Business Property Relief presents a valuable opportunity for individuals to mitigate Inheritance Tax liabilities and plan for the future efficiently.

By understanding the process of claiming BPR relief, incorporating it into inheritance tax planning and lifetime strategies, and being aware of potential risks, individuals can make informed decisions to optimise their tax position while safeguarding their business interests.

Seeking tailored professional advice is essential to fully leverage the benefits of BPR and ensure compliance with tax regulations.

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andreas gerazis

Andreas Gerazis

Experienced landlord

Andreas is a certified landlord with extensive knowledge about the UK property market as he has been actively investing for half a decade. Founder of the first three-in-one property management software, Lofti Proptech, Andreas has a brilliant understanding of the details surrounding what it takes to grow and run a thriving property portfolio.

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