Tax & Accounting News

Business Property Relief – Use It or Lose It

28/04/2009

Business owners are being alerted to an important tax relief which allows exemption of up to 100 per cent from inheritance tax when passing on a company – but only if a number of conditions are met.

At its best, Business Property Relief (BPR) should mean there is little risk of a business having to be sold in order to meet tax liabilities on the death of the owner. There is also no requirement to hold a minimum shareholding in an unquoted company or be actively involved in the day-to-day running of the business.

However, the business must normally have been owned for at least two years before a transfer and there must also not be any existing binding agreement to sell the firm – for example an agreement between partners that on the death of one of them, the remaining partners must buy out their shares.

In addition, the relief does not apply to businesses which consist wholly or mainly of making investments or dealing in land, buildings or shares. If a company starts to hold investments such as property, HM Revenue and Customs will look at a number of factors, such as the level of profit from rental income compared to the company’s trading profit. If a company derives more than 50 per cent of income in this way, it will not normally qualify for BPR.

This may be a particular issue in the current economic climate for property development businesses which have been forced to hold onto completed developments and rent them out until the property market recovers. In such cases, how these properties are shown on the accounts becomes very important - retaining them as trading stock rather than longer-term investments may be crucial to winning any argument with HMRC.

For more information on BPR please contact us.

 

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