Type |
Rate of
relief |
A business or
an interest in a business |
100% |
Unquoted
shares |
100% |
Unquoted
securities which on their own or combined with other unquoted shares or
securities give control of an unquoted company |
100% |
Quoted shares
which give control of the company |
50% |
Land or
buildings, machinery or plant used wholly or mainly for the purposes of the
business carried on by a company or partnership |
50% |
Land or
buildings, machinery or plant available under a life interest and used in a
business carried on by the beneficiary |
50% |
BPR is not available in respect of a business, or shares in a company that is:
• not carried on for gain (not for profit or not on a commercial basis), or
• subject to a contract for sale or being wound up.
‘Buy and sell’ or ‘double option’ agreements
A ‘buy and sell’ agreement on death is a contract for pre-sale, and loses any BPR; double or cross option agreements should be valid for BPR.
Tip:
Check your agreements for sale of a business on death.
Excluded activities for BPR:
- There is no BPR broadly if the business is one of ‘wholly or mainly’ in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.
- Investment income - a business which only generates investment income will not attract BPR, so this generally excludes a residential or commercial property letting business, a property dealing business and a serviced office business.
- Property management, holiday businesses, property development - but mixed estates of (say) farming and letting may qualify, as well as caravan parks where (for example) there is letting, but the business is mainly holidays and caravan sales.
Trading activities
Trading activities qualifying for BPR include woodland management, farming (N.B. this may be subject to agricultural property relief) and sporting - shooting and fishing.
There are many traps and pitfalls for the unwary. For succession planning, the question is often asked whether private company shares should be retained until death and then sold or passed to others by will or by agreement.
Directors’ loan accounts
These do not qualify for BPR and are subject to IHT.
Tip:
Check directors’ loan accounts to see if they can be replaced with bank finance if required.
Investments
Investments in private company shares may qualify under the enterprise investment scheme (EIS) or seed EIS (SEIS) rules, and shareholders holding these shares (and certain AIM shares) may be eligible for full IHT relief after two years, including the growth in the shares. There is no limit to the amount of relief.
Tip:
If other investments are subject to IHT, consider SEIS or EIS shares and qualifying AIM shares to shelter your investments from IHT.
Sell or hold qualifying shares
If you sell qualifying business shares prior to death, BPR does not apply to the proceeds and would be liable to IHT. If facing IHT issues in your estate, it may be worth considering retaining shares that qualify for BPR, and selling investments that do not qualify, if cash is required.
Practical Tip:
Businesses change over time, so ensure that your business qualifies for BPR wherever possible.