Business property relief (BPR) can be a valuable relief from IHT. It allows you to claim relief on business assets that you own, including qualifying businesses that you hold shares in.
BPR: THE BASICS
BPR was introduced as part of the 1976 Finance Act, and was created to allow small businesses to be passed down through generations without incurring an IHT liability. However, over the years the scope of BPR has been widened, making it an attractive option for individuals looking to invest in companies in order to remove a potential IHT burden.
WHICH COMPANIES QUALIFY FOR BPR?
- Smaller companies that are not listed on the main London Stock Exchange
- Some companies that are listed on the Alternative Investment Market (AIM) or Plus stock exchanges
- Businesses considered to be ‘actively trading’, and are therefore not just investment companies
It is worth noting that some businesses, including those that deal in stocks and shares, land or buildings and some specific industries (including resources and mining companies and also not-for-profit organisations) do not qualify for BPR.
INVESTMENTS THAT USE BPR
Some investment companies offer products that invest in companies that qualify for BPR, for example AIM-listed or unquoted companies. This means that the investment itself, as long as it is held for two years, will not be subject to IHT upon the investor’s death. Married couples and civil partners also have the option to move the investment between spouses or civil partners. This means that should the investor die during the initial two year period, the investment can be moved to their surviving spouse or civil partner without resetting the, two year clock.
There are a number of rules relating to products that invest in BPR qualifying companies, including that the investment company must invest your money and hold qualifying assets for two years to qualify. They must replace any companies sold from the portfolio within three years, and the assets (and therefore the investment) must be held at time of death for the investor to get IHT relief. Using BPR effectively within investment products is a complicated business, so if you decide this is the right option for you, it’s important to choose a company that’s experienced in investing in this area.
WHAT ARE THE BENEFITS OF BPR?
Faster IHT exemption: Unlike gifts and trusts, which generally take seven years before they’re fully exempt from IHT, BPR-qualifying investments are IHT exempt after just two years (provided the investments are held at the time of death).
Greater access and control: Unlike with a gift, the investor retains control over the investment, and can get their money back, if they need to. However, money taken out of the investment may not be shielded from IHT.
Income options: Many BPR solutions allow the investor to take an income from their investment.
Simplicity: BPR investments are relatively simple and straightforward to invest into. Generally there are no complex legal structures, and there may not be a requirement for client underwriting or medical surveys.
