Business Relief as an Inheritance tax solution

A trading business can be exempt from inheritance tax because of their role in providing economic growth and may qualify for Business Relief.

At Bluebond Tax Planning, we provide our clients with a comprehensive solutions to all the legal,tax and financial planning elements, which is essential to provide you with the most suitable IHT advice

Business Relief  - Qualifying rules to obtain relief

  1. Business assets must have been owned by the donor for two years to qualify for Business Relief. The business in respect of which a claim is made must also be wholly or mainly a trading company.
  2. Investment companies and businesses dealing in shares, stocks, securities, lands or buildings do not qualify for Business Relief.
  3. As a small business owner, the current law particularly benefits small businesses that are family owned trading companies. They will be most likely to qualify for Business Relief and make the most of the possible IHT saving.

Business Relief  - Qualifying rules to obtain relief

  1. Business assets must have been owned by the donor for two years to qualify for Business Relief. The business in respect of which a claim is made must also be wholly or mainly a trading company.
  2. Investment companies and businesses dealing in shares, stocks, securities, lands or buildings do not qualify for Business Relief.
  3. As a small business owner, the current law particularly benefits small businesses that are family owned trading companies. They will be most likely to qualify for Business Relief and make the most of the possible IHT saving.

Advantages of Business Relief

  • Business Relief can provide 100% relief from IHT on a sole trader’s business or partnership interests and can apply to shares in trading companies that are not quoted on a recognised stock exchange.
  • There is no limit to the value of Business Relief which can be claimed.
  • Shares quoted on the Alternative Investment Market can also be eligible for 100% Business Relief.
  • Business Relief is also available on land, machinery, plant and buildings used for business purposes.

Advantages of Business Relief

  • Business Relief can provide 100% relief from IHT on a sole trader’s business or partnership interests and can apply to shares in trading companies that are not quoted on a recognised stock exchange.
  • There is no limit to the value of Business Relief which can be claimed.
  • Shares quoted on the Alternative Investment Market can also be eligible for 100% Business Relief.
  • Business Relief is also available on land, machinery, plant and buildings used for business purposes.

How business owners can benefit from Inheritance Tax?

As a business owner with your own business assets value, you should be aware that inheritance tax (IHT) treated on your business is different from personal property. If you have a rental property business it will NOT qualify for Business Relief.

Trading companies normally get 100% Business relief while investment companies ( companies that hold rental properties) do not get any BR and the value of the assets are included in the shareholders estate for IHT.

Business Property Relief - Other things to consider

There are several issues to consider and expert advice is essential when undertaking IHT planning with regard to business assets, especially in the context of a family run business. Points to consder are :

  • It may be preferable for a donor to leave IHT-exempt assets to a Beneficiary, such as a Trust, other than their spouse or civil partner.
  • There are no savings if business assets are passed to a Beneficiary who would not be liable for IHT. For example, a transfer of business assets qualifying for Business Relief to a spouse would achieve no IHT saving on that transfer because transfers between spouses are normally exempt from IHT in any event.
  • No Business Relief is available where there is a binding contract for the sale of a business. This might occur where there are a small number of Shareholders who have a shareholders’ agreement which requires that, should one of them die, their Executors will sell his or her holding to the remaining shareholders, who are required to buy it.

How business owners can benefit from Inheritance Tax?

As a business owner with your own business assets value, you should be aware that inheritance tax (IHT) treated on your business is different from personal property. If you have a rental property business it will NOT qualify for Business Relief.

Trading companies normally get 100% Business relief while investment companies ( companies that hold rental properties) do not get any BR and the value of the assets are included in the shareholders estate for IHT.

Business Property Relief - Other things to consider

There are several issues to consider and expert advice is essential when undertaking IHT planning with regard to business assets, especially in the context of a family run business. Points to consder are :

  • It may be preferable for a donor to leave IHT-exempt assets to a Beneficiary, such as a Trust, other than their spouse or civil partner.
  • There are no savings if business assets are passed to a Beneficiary who would not be liable for IHT. For example, a transfer of business assets qualifying for Business Relief to a spouse would achieve no IHT saving on that transfer because transfers between spouses are normally exempt from IHT in any event.
  • No Business Relief is available where there is a binding contract for the sale of a business. This might occur where there are a small number of Shareholders who have a shareholders’ agreement which requires that, should one of them die, their Executors will sell his or her holding to the remaining shareholders, who are required to buy it.

FAQ - Business Relief

When should a Business Relief plan be considered?

The main benefit of a Business Relief plan is that the amount invested (provided the plan is eligible for Business Relief when the investor dies) will be outside of the investor's Estate for inheritance tax after two years instead of the usual 7 years for direct gifts or gifts into a Trust. This is helpful if the investor believes they may not live 7 years from the date of the investment. Also, if the investor requires complete access to the return of their capital, these types of plans are useful.

How much can be invested into a Business Relief plan?

There is no upper limit, but some plans have a minimum investment level. However, as these investments are money placed into a single company, the potential for loss of capital could be higher than more mainstream pooled investments into Unit Trusts, Equity-based Investment Bonds or Pensions. Diversification across several plans would usually be advised to reduce the potential for capital losses.

How do I know which investment to utilize?

This is a specialist area of advice and therefore advise form a FCA regulated experienced Independent Financial Adviser should be sought. Although most advisers are qualified to give this advice, very few have a high level of experience in this are as it is highly specialised.

Are there other tax advantages to a Business Relief plan?

Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes also provide income tax and Capital Gains tax benefits. Once again, this is specialist advice and Experience in this type of advice is essential.

How long must I hold a Business Relief plan to save Inheritance tax?

The plan must be held for at least two years to qualify for inheritance tax relief and must also still be held by the investor on death. It is possible to surrender the investment after 2 years ( some are very illiquid) and reinvest the money fully back into another qualifying plan without the 2-year qualifying period starting again.

Can Business Relief plans be used in conjunction with Trusts?

Yes. This type of planning is useful for people who have not used their full Trusts allowances. It places the funds in a more protected and controlled legal environment. It also reduces the value of the Estate for the retention of the Residential Nil Rate Band allowance if the investor is likely to die with assets of over £2 million.

The information contained in this web site is for UK consumers only.  Like most firms of solicitors and accountants, Bluebond Tax Planning is not regulated by the FCA. The content of this website does not constitute FCA regulated financial advice and all content is provided for general information purposes only. Bluebond is not responsible for any action you may take as a result of information on this site. All advice will be delivered on a personal basis once we fully understand your situation and our client agreements have been signed.

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