An "at a glance" guide:
Business Property Relief (BPR) provides relief from Inheritance Tax (IHT) on the transfer of relevant business assets at a rate of 50% or 100%.
Relevant business property comprises of:
| Type | Rate of relief |
| A business or an interest in a business. | 100% |
| Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company | 100% |
| Unquoted shares | 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 individual | 50% |
Relevant property must be held for at least two years in order to qualify for relief.
BRP is not avalable 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)
- Engaged wholly or mainly in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.
BPR will also be denied if business property is subject to a contract for sale.
Pitfalls and planning points
Sole traders
- No BPR is given for land or buildings, machinery or plant used wholly or mainly for the purposes of a sole trader business
- BPR is given for the transfer of the business as a whole.
Partners
- No BPR is given on a loan made to a partnership following retirement.
- 100% relief is given for an interest in a partnership, compared to 50% for property lent to a partnership; it may be beneficial for the partnership to hold property so that it can attract 100% relief.
- In Scotland, its inheritance laws can split family partnership property in different ratios to a partnership agreement.
Directors
- No BPR is given in respect of a directors' loan account.
Business activities
There is no BPR if the business, or company is one of "wholly or mainly" in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.
A business which only generates investment income will not attract BPR, so this excludes:
- A residential or commercial property letting business
- A property dealing businesses
Some business activities are borderline: whether they will qualify for relief depends on the nature of services provided, typically these are:
- Furnished holiday letting
- Property management
- Property development - if there is also substantial letting and dealing
- Mixed estates of farming and letting
- Caravan parks - where there is letting, holidays and caravan sales
Certain activities are regarded as trading:
- Farming (this is covered by Agricultural property relief)
- Woodland management
- Sporting - shooting and fishing
What is "wholly or mainly" in relation to business
"Wholly or mainly" is is generally taken as meaning more than 50%, however, the courts are very flexible and they take this in the context of business so no strict test applies. The courts will consider:
- The overall context of the business.
- The activities over a number of years, if necessary.
- The turnover and profitability of the all various activities.
- The activities of the employees and time they spend on the various activities.
- The acreage or size of business units used.
- The capital values of land and property.
These factors are considered “in the round”. However, no one factor is decisive or ranking higher than another.
There is a wealth of case law on this topic, in general featuring mixed estates, farms and caravan parks. Crucially, these cases are decided according to their individual facts and circumstances.
Holding companies and groups
Problems may arise when business property comprises of shares in a holding company. Shares in a company which exists only as a holding company may pass the business asset test, however, it is necessary to consider in the round the activities of the group. See Business Property Relief: holding companies for recent developments.
Surplus cash
Cash may build up in the balance sheet of a business over the years as a result of trading activities and shareholders neglect to withdraw what they come to consider as their “nest egg”. It can easily become a small company or business's biggest asset this may impede on the "wholly or mainly" tests.
Tax cases
Wholly or mainly investment activities?
Holiday Letting
Nicolette Vivian Pawson v HMRC [2011]
Mixed & farming:
Moore's Executors v CIR [1995] STC (SCD) 5
Burkinyoung's Executor v CIR [1995] STC (SCD) 29
Farmer's Executors v CIR [1999] STC (SCD) 321
HMRC v George [2004] STC 147
HMRC v A M Brander the Executor of the late fourth Earl of Balfour [2010] UKUT 300 (TCC) & [2009] UKFTT 101 TC 69 a mixed estate qualified for BPR, looking at the activities in the round and not placing over reliance on the value of investment property.
Farming APR and BPR
The Trustees of Nelson Dance v HMRC [2009] EWCA 71 Ch
HMRC v Atkinson & Anor [2011] UKUT B26 (TCC) a bungalow let to a farming partnership failed to qualify for APR once the farmer who occupied it moved into separate residential care.
Caravan sites
Furness v CIR [1999] SSC (SCD) 232 SpC 202
Weston v CIR [2000] STC 1064
One business or two interconnected ones?
Scales V Greorge Thompson & Company Limited [1927] 13 TC 83
Companies: trading or investment?
Letting is investment: Clark and another v HMRC (SpC 502) [2005] STC (SCD) 177
A loan finance company was trading: Phillips and others (Executors of Rhoda Phillips Deceased) v HMRC SpC 555
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