What is Business Relief and how does it apply to IHT?
Do you want to support grassroots businesses in the UK? Did you know that you can also benefit from certain tax reliefs by doing so? One such relief is Business Relief (BR), an often overlooked but valuable tool for any business owner or investor looking to reduce their inheritance tax bill.
What is Business Relief?
Business Relief, also known as Business Property Relief (BPR), is a tax relief designed to help small and medium-sized businesses in the UK. BR was introduced by the Government in 1976 to encourage individuals to invest in small and medium-sized businesses. The relief applies to certain types of assets, including business assets and shares in qualifying companies.
Business Relief is a valuable tool that helps businesses continue operating smoothly even after a business owner or investor dies. When Inheritance Tax is calculated on the value of an estate, any amount above the IHT threshold becomes taxable. This can be a problem for trading businesses, as they may not be able to survive if the beneficiaries have to pay tax on their value.
Business Relief provides a solution by allowing qualifying businesses to claim relief from Inheritance Tax, ensuring their continuity for the future.
How can BR apply to you?
You could be eligible for BR if you’re a business owner or a small business investor in the UK. Many businesses in the UK can benefit from BR, including:
- Sole traders
- Limited companies
- Unlisted shares, e.g. AIM-listed companies
To qualify for BR, the business must be trading, not purely an investment vehicle. Furthermore, the qualifying asset must have been owned for at least two years and be deemed ‘relevant property’ under the BR rules at the time of death.
Assets that qualify for 100% BR
- Shares in an unlisted public limited company (PLC)
- Shares in a private limited company (Ltd)
- Shares listed on the Alternative Investment Market (AIM) – a sub-market of the London Stock Exchange
- Ownership of a sole trader business
- Part-ownership of an unincorporated business (partnership)
Assets that qualify for 50% BR
- Shares that control more than 50% of the voting rights in a listed public limited company – i.e., a company that’s listed on the London Stock Exchange
- Buildings, land, or machinery used wholly or mainly for the business of a partnership or company that the deceased had an interest in
What are the benefits of Business Relief?
The primary benefit of Business Relief is that it can significantly reduce the inheritance tax payable on a business owner’s estate. Furthermore, BR can help business owners or investors pass on their assets to their children, grandchildren, or other beneficiaries without needing to pay IHT.
BR can be beneficial for businesses that are owned by families. By using BR, families can pass on their business assets to future generations without the burden of IHT. This can help ensure the long-term stability and growth of the family business.
Examples of BR in action
Here are some real-world examples of how BR has been applied in the UK:
- A husband and wife owned a farm worth £2m. By using BR, they could pass the farm to their children without incurring any IHT.
- A business owner gave his shares in a BR-qualifying company to his children 18 months ago. As the shares are BR qualifying, no IHT will be paid as long as he lives another six months.
- An investor in BR Qualifying Assets worth £1m passes away three years after they were bought. His daughter inherits the assets in full without having to pay IHT. She can sell them and use the proceeds for her needs or continue holding the assets without any tax concerns.
Is Business Relief for me?
Owning qualifying business assets for at least two years could benefit from up to 100% relief on IHT payable on your estate. You don’t need to be a business owner, and you can also invest in BR-qualifying assets. Soteria Trusts’s own Business Relief Account is a secure, low-cost administration platform and custodian account for holding Business Relief qualifying assets.
Soteria Business Relief Account
The Soteria BR Account sets out to reduce your personal IHT liability by utilizing incentives and reliefs that HMRC has been granting to taxpayers since 1976 and which can be taken up voluntarily by all.
Soteria Business Relief Account could be right for you if you want the money you invest to become inheritance tax-exempt quickly. BR-qualifying assets become exempt from IHT after only two years of owning them. However, please keep in mind that the nature of BR-qualifying investments generally comes with a higher liquidity risk than traditional investments, which can lead to a decrease in value if market conditions become unfavourable.
For a complete overview of the Soteria Business Relief Account, its benefits and Risks, please download the SOTERIA BUSINESS RELIEF ACCOUNT TECHNICAL & OPERATIONAL GUIDE or contact Soteria Trusts today!