Hello to our readers across the UK. Today we’re delving into a topic that might seem a bit complex but is crucial for many businesses. Business Property Relief (BPR). We aim to make this as simple and understandable as possible. so let ‘s break it down With us.
What is Business Property Relief (BPR)?
BPR is a relief from Inheritance Tax (IHT) on specific assets. Ensuring that businesses can smoothly transfer to the next generation without hefty IHT bills.
Why Was BPR Introduced?
BPR Designed to support family-owned businesses. BPR ensures that these companies aren’t sold off to settle IHT liabilities.
The Essentials of BPR
BPR provides tax relief on certain business assets. This means if your business qualifies you could significantly reduce or even eliminate IHT payable on these assets.
Tax Planning and BPR
For those who want to maximise the benefits of BPR. Strategic tax planning is crucial. Keeping abreast of the current tax landscape and understanding BPR role is essential.
Let’s take a look at a hypothetical scenario involving tax planning with Business Property Relief (BPR) to understand how it can result in tangible Inheritance Tax (IHT) savings:
Mrs. Smith owns an estate worth £1,200,000. This includes her home some savings and a family run shop a trading business she’s owned for several years.
Breakdown:
- Home value: £700,000
- Savings: £100,000
- Family run shop (unlisted company): £400,000
Here the table compares Inheritance Tax calculations without and with the application of Business Property Relief (BPR).
Calculation Component | Without BPR | With BPR |
Total Estate | £1,200,000 | £1,200,000 |
BPR-eligible assets | – | £400,000 |
Total Estate after deducting BPR-eligible assets | £1,200,000 | £800,000 |
IHT threshold (Nil-rate band) | £325,000 | £325,000 |
Taxable amount (After deducting Nil-rate band) | £875,000 | £475,000 |
Inheritance Tax (IHT) at 40% of taxable amount | £350,000 | £190,000 |
Tax Savings due to BPR: £350,000 – £190,000 = £160,000
By using BPR in the tax planning the Inheritance Tax bill can be significantly reduced as illustrated in this table.
Calculating IHT
The Inheritance Tax is calculated based on the total value of the estate. By understanding BPR. You can potentially reduce your IHT liability. Always refer to the latest HMRC rates for accurate calculations.
Does Your Business Qualify for BPR?
It’s important to remember that not all businesses qualify. HMRC has set specific criteria with trading businesses typically qualifying while investment based ones might not.
Here is the list of qualifying for BPR and Not qualifying for BPR.
Qualifying for BPR | Not Qualifying for BPR |
Trading businesses where the main activity is trading | Businesses primarily involved in investments |
Shares in unlisted companies | Companies dealing mainly in securities stocks or shares |
Shares in AIM listed companies | Businesses dealing predominantly in land or buildings |
Shares giving control in a listed company | Businesses not operated with the intent of profit |
Interests in partnerships | Shares in non-UK based companies |
Assets of a sole trader used in the business | Businesses with over 50% non trading activities |
BPR on Company Transfers
Transferring shares of unlisted companies might make you eligible for BPR. But as always there are conditions and specifics to be met.
BPR and Sole Traders
For sole traders BPR can be a boon. If the business assets meet the criteria they might get relief from IHT.
How to Claim BPR
It’s vital to ensure you’re meeting all requirements when claiming BPR. This includes submitting the correct documentation and adhering to HMRC guidelines.
Real-world Scenarios: BPR in Action
Imagine Jane and her bookstore. If she’s checked off all the boxes for BPR her heirs might benefit from reduced IHT. However real-world cases often come with nuances so seeking advice is always a good call.
Here’s a simplified guide on making the most of Business Property Relief (BPR):
- Understand Eligibility: Learn which business assets can get BPR. Usually businesses that trade goods or services qualify.
- Maintain Records: Have clear records of your business assets. This helps prove they’re eligible for BPR.
- Check Your Business: Make sure your business is more about trading than just investments. Only trading businesses usually get BPR.
- Hold Assets for 2 Years: You usually need to own the assets for at least two years before they can get BPR.
- Ask the Experts: Talk to tax experts about BPR. They can help you get the most benefits.
- Stay Updated: Tax rules can change. Keep an eye on the latest rules from the tax office (HMRC).
- Start Planning Now: Think about BPR early. This helps reduce taxes when passing on assets to family.
Remember BPR can save on taxes but always make sure you’re following the rules.
Conclusion
BPR offers a lifeline for many businesses across the UK. While it has its complexities. Its fundamentals can affect everything. Stay updated with HMRC guidelines and when in doubt seek expert advice.
Till our next chat stay informed and navigate the business world with confidence.
