What is Business Property Relief (BPR)? When does it apply? What are the conditions?

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This is a freeview 'At a glance' guide to Business Property Relief.

At a glance

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:

Type Rate of relief

A business or an interest in a business.

100%

Unquoted shares, including shares listed on the Alternative Investment Market (AIM).

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%


Relevant property must usually be held for at least two years in order to qualify for relief, although there are exceptions to this rule. See IHT Business Property Relief

Pitfalls and planning points

Sole traders

  • 100% BPR is given for the transfer of the business as a whole.
  • There is no BPR given for the transfer of land or buildings, machinery or plant used wholly or mainly for the purposes of a sole trader business, except in certain circumstances. See IHT Business Property Relief

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 or used by a partnership but held outside of it. See IHT Business Property Relief for how to structure your partnership to achieve 100% relief.
  • The IHT laws in Scotland may mean the position is slightly different. See IHT Business Property Relief.

Directors

  • No BPR is given in respect of loans made to a company, such as a credit balance on a director's loan account.
  • Property that is owned by a shareholder and used by the company will only qualify for 50% BPR subject to certain conditions. See IHT Business Property Relief.

Business activities

BPR is not available in respect of a business, or shares in a company that is:

  • Not carried on for gain i.e. not for profit or not on a commercial basis.
  • Subject to a contract for sale or being wound up.

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.

There is a wealth of case law on the topic of 'wholly or mainly'. See IHT Business Property Relief for an analysis of the points to consider. 

A business that only generates investment income will not attract BPR, so this excludes:

  • A residential or commercial property letting business.
  • A property dealing business.
  • A serviced office business.

Some business activities are borderline and whether they will qualify for relief depends on the nature of services provided, typically these include:

Certain activities are regarded as trading:

Excepted assets

Where BPR is available in respect of a business, relief will be restricted where excepted assets are held. 

  • An excepted asset is property that has not been used for the purposes of the business throughout the two years prior to transfer, nor was it required at the time of the transfer for future business use.

See IHT Business Property Relief for more details, including examples.

Useful guides on this topic

IHT Business Property Relief
A guide explaining what Business Property Relief is, when it can apply and pitfalls and planning points.

IHT Agricultural Property Relief 
What is Agricultural Property Relief (APR)? When does it apply? What are the conditions and restrictions of the relief?

Woodlands: Overview
Woodlands and forestry ownership carry significant tax reliefs, including Income Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT). 


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