Business property relief is a form of tax relief that reduces the amount of inheritance tax due on business assets, including property, buildings, unlisted shares, and machinery.
It’s a complicated subject but this guide will explain everything you need to know about how business relief works and what this means for inheritance tax planning.
Business relief is used when working out how much inheritance tax is due on a business and its assets.
Everyone in the UK has an inheritance tax allowance of £325,000, known as the nil-rate band. Inheritance tax must be paid on your estate for anything valued higher than this amount – this is usually a 40 per cent rate.
If you own a business, or a share of a business, this will form part of your estate and could mean passing on a costly inheritance tax bill to your loved ones when you die.
However, by claiming business property relief, you can reduce the value of your business assets meaning the inheritance tax liable would be less.
Business relief can be claimed on 50 per cent or 100 per cent of your business assets, including property and buildings, unlisted shares, and machinery.
To calculate relief at 50 per cent, you’ll need to work out the market value of the business.
HMRC recently launched a new inheritance tax calculator, a tool designed to help you calculate how much IHT tax you'll have to pay. It asks you to put in the estimated value of your assets, and, if this is over the threshold for inheritance tax, it'll give you more information on the different reliefs available.
When it comes to what qualifies for business relief, it depends on the type of business you own. Here’s how it works:
|100% business relief||50% business relief|
|A business or interest in a business||Shares controlling more than 50% of the voting rights in a listed company|
|Shares in an unlisted company||Land, buildings, or machinery used in a business you’re a partner in or controlled|
|Land, buildings, or machinery used in the business and held in a trust it has the right to benefit from|
IHT business property relief example
You’re a sole trader and the market value of your business is £400,000 and you leave it to your loved ones in your will. Your business would be eligible for 100 per cent business relief, so they wouldn’t have to pay inheritance tax on the £75,000 over the nil-rate band.
Other things to note:
More information can be found on the government website.
The person dealing with the estate after a person has died (known as an executor or administrator) will need to complete two forms to claim business relief:
Dealing with a will for someone who’s owned a business is particularly complex, so it’s a good idea to get legal advice here.
Perhaps you’re thinking about retirement and want a family member to take on ownership of your business. Did you know it’s possible to give your business away to someone and they won’t have to pay inheritance tax?
You can give away your business as a gift and, as long as they continue operating the business and making a profit until after you pass away, they can keep the relief.
Inheritance tax won’t apply if you die more than seven years after donating your business as a gift anyway.
Business property relief and inheritance tax are complex topics. You should speak to a financial adviser or a solicitor if you need more information.
Do you have any questions about Business Property Relief? Let us know in the comments.
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