Using Business Property Relief Plans to Avoid Inheritance Tax
Business Property Relief (BPR) was introduced in 1976, but over the past decade it has become an increasingly mainstream option. With the inheritance tax allowance still stuck at £325,000 and house prices rising, more and more people are finding it can give them a way to reduce or eliminate the inheritance tax (IHT) bill their families are going to have to pay on their estate.
BPR was originally designed to ensure that family businesses can be passed down the generations without being sold or broken up to pay tax. Over the years there have been numerous changes to the finer points of the BPR regulations but the basic principle is that ‘relevant business property’ will receive full relief from inheritance tax (IHT).
Today a new market has emerged which is designed to give a broader range of retail investors access to BPR-qualifying products run by professional fund managers. This type of service means that a wider range of investors can take advantage of the clear advantages that BPR plans give when it comes to managing IHT liabilities.
Firstly it can give IHT exemption in two years, rather than seven years needed for most gifting and trust arrangements to become fully effective. This means BPR options may be worth considering when someone may not live for another seven years. Unlike gift assets away BPR qualifying investments will allow people full access to their capital, and control over it. A further advantage of a BPR-qualifying investment is that it will be simple to set up. There’s no need for a solicitor and no medical underwriting as for life insurance. BPR-qualifying investments will only be exempt from IHT if they are still owned at the time of their death.
However, there is some flexibility about rolling plans over within 6 months to three years after the two-year qualifying period and moving it into another plan. This concession provides flexibility for all investors in BPR qualifying investments. If someone dies before they have had their BPR investment for two years, they can leave it to their spouse without interrupting the period for IHT-effectiveness.
Clients who may want to make withdrawals also need to bear in mind that they may not be able to sell their BPR investments as quickly as they would like to. Shares listed on AIM, for example, can take longer to sell than shares listed on the main stock exchange. Few investors will want to rely on a BPR solution in isolation. They are much more likely to see it as part of a joined-up estate planning strategy that might also incorporate trusts, gifts and an element of life insurance. Naturally, different options will be suitable for different assets. As always experienced advice is essential in this area.