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Business property relief (BPR)– An overview
This is the second series of the inheritance tax segment. The focus is on BPR, whose predecessor first gained prominence in 1976 and has since been enhanced to include investment incentives for private investors
Investment Incentives
One of BPR’s objective as an investment incentive, is to encourage individuals to invest their cash into the shares and securities of smaller companies, which may be deemed riskier investments, compared to their listed counterparts.
BPR and the family business
The main aim of BPR was to ensure that after the death of an owner of a familyowned business, the company (or unincorporated business) could survive as a trading entity without having to be sold in part or in whole, to pay for an inheritance tax liability.
BPR may be given on lifetime or death transfers. On lifetime transfers, the BPR reduces the transfer of value for inheritance tax (IHT) purposes and is given prior to the annual exemption. The rate of relief is either 50% or 100%.
On death BPR, reduces the value of business assets in the death estate. The relief is automatic and no formal claim is required, provided the conditions are met.
But what assets are included?
• A sole trade business or share in a partnership.
• Shares (any amount) in an unlisted trading company
• Shares in a quoted trading company if the donor has voting control of the company (50% + of the ordinary shares)
• Land or buildings or plant and machinery owned by an individual and used either by a partnership of which they are a member or a company they control.
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What’s the catch?
The presiding rule is that the donor must have owned the property for at least two years prior to the transfer. If this minimum ownership requirement has not been met, the donor will not receive BPR on the transfer. However, this rule is subject to certain overrides and below we take a look at one example.
Example – Transfer of shares involving spouses
Mootu owns shares in Bengali Restaurant Ltd an unlisted trading company, these shares were purchased in 2017. He dies and gifts shares to his wife Sumdhi in 2020 (via his Will) and she holds the shares for l8 months before transferring them to a trust.
As Mootu and Sumdhi were married. Mootu’s ownership period is aggregated with Sumdhi to satisfy the two-year ownership requirement. Therefore, Sumdhi will qualify for BPR on the transfer of the shares to the trust.
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Legal disclaimer
This summary is for information purposes only. It provides only an overview and no action should be taken without seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the author or the firm.