Business Property Relief (BPR) is one of the most valuable inheritance tax reliefs available, potentially reducing the tax on qualifying business assets by up to 100%. For business owners, understanding how BPR works and how trusts can help preserve this relief is essential for effective succession planning.
In this guide
What is Business Property Relief?
Business Property Relief is a relief from inheritance tax designed to help family businesses pass to the next generation without being broken up to pay tax bills. When it applies, qualifying business assets may be fully or partially exempt from inheritance tax.
The relief rates are:
- 100% relief: For unquoted shares, partnership interests, and sole trader businesses
- 50% relief: For quoted shares where the deceased had control, and for certain business property such as land or buildings
What assets might qualify?
Assets that may qualify for BPR include:
- Shares in an unquoted trading company
- Shares in qualifying companies listed on the Alternative Investment Market (AIM)
- An interest in a trading partnership
- Assets of a sole trader business
- Land, buildings, or machinery used in a qualifying business
Important conditions must be met: the assets must have been owned for at least two years before death, and the business must be a trading business rather than primarily an investment business.
Why planning matters
While BPR is a valuable relief, it is not automatic. Careful planning is needed to:
- Ensure assets genuinely qualify for the relief
- Preserve the relief after death
- Manage succession in a way that works for the family and the business
- Balance the needs of family members who are involved in the business with those who are not
How trusts can help
Trusts can play an important role in planning for business assets:
Preserving BPR
If business assets are left outright to beneficiaries who then sell them, BPR may be clawed back. A trust can help ensure assets continue to be used in a qualifying manner.
Protecting the business
Leaving business assets in trust rather than outright can protect the business from divorce settlements, creditors, or beneficiaries who might want to sell.
Managing succession
Trusts can provide for a surviving spouse while keeping control of the business in appropriate hands, or can hold shares until younger family members are ready to take over.
Balancing family interests
Where some family members work in the business and others do not, trusts can help balance different interests fairly.
Common pitfalls
BPR planning requires care. Common problems include:
- Assuming assets qualify when they do not
- Failing to meet the two-year ownership requirement
- Holding investment assets within a business structure, which may jeopardise relief
- Beneficiaries selling qualifying assets too quickly after inheriting
- Not reviewing arrangements as circumstances change
The importance of professional advice
BPR rules are complex and the stakes are high. Getting it wrong can result in a significant and unexpected tax bill. Professional advice from experienced advisers - including will writers, accountants, and tax specialists - is essential.
Many business owners across Kent, including in Tonbridge and Sevenoaks, work with professional advisers to structure their succession planning effectively.
Coordination with other planning
Business succession planning should coordinate with broader estate planning. Consider:
- How business assets fit alongside other assets in your estate
- The relationship between lifetime gifts and gifts on death
- Agricultural Property Relief if you have farming interests
- Lasting Powers of Attorney to ensure business continuity if you lose capacity
Key takeaways
Business Property Relief can provide significant inheritance tax savings for qualifying business assets. Trusts can help preserve these benefits and manage succession effectively. However, the rules are complex and professional advice is essential to ensure you structure your planning correctly and maximise available reliefs.
Frequently Asked Questions
What is Business Property Relief?
Business Property Relief (BPR) is a valuable inheritance tax relief that can reduce the tax on qualifying business assets by up to 100%. It is designed to allow family businesses to pass to the next generation without a crippling tax bill.
What assets qualify for Business Property Relief?
Qualifying assets typically include unquoted shares, shares in qualifying AIM-listed companies, partnership interests, and sole trader businesses. Assets must have been owned for at least two years and must be used in a trading business.
Why use a trust for business assets?
A trust can help preserve BPR benefits, protect business assets for future generations, provide for a surviving spouse while keeping control of the business, and manage succession planning effectively.
Can BPR be lost after death?
Yes. If beneficiaries sell the business or qualifying assets within a certain period after inheriting them, or if the assets are no longer used for trading, the BPR benefit may be clawed back. Professional advice helps structure inheritance to preserve the relief.
Do I need professional advice for BPR planning?
Absolutely. BPR rules are complex and the consequences of getting it wrong can be expensive. Professional advice ensures you structure your estate planning correctly to maximise and preserve available reliefs.