Inheritance Tax is charged on the estate (such as property, money, assets, and other possessions) of someone who’s died if its value is more than a certain threshold – currently £325,000.

Business Relief (BR), also known as Business Property Relief (BPR), is designed to support the continuity of family-owned and other qualifying businesses by giving relief from Inheritance Tax on certain business assets. Here we take a look at how businesses can claim relief if the owner dies.

What’s the point of Business Relief?

Business Relief was introduced in 1976 to encourage entrepreneurship and the growth of small and medium-sized enterprises (SMEs). It allows someone to either gift qualifying assets during their lifetime, or pass them on after their death at a reduced rate – or even free from Inheritance Tax altogether.

The relief aims to stop healthy businesses having to be sold simply because the new owner needs to pay their Inheritance Tax bill.

Who’s eligible to claim Business Relief for Inheritance Tax?

The business assets being passed on or gifted must meet HMRC criteria in order to qualify for Business Relief. We detail these requirements in the table below.
 

How much is Business Relief for IHT?

The percentage rate of Business Relief available for Inheritance Tax depends on the type of asset, and how long it has been owned for.

 
For instance, shares in an unlisted trading company or a controlling interest in a trading partnership usually qualify for 100% relief, while other assets, like shares in a listed company, may qualify for 50% relief.

How do I apply for Business Relief?

Executors or administrators dealing with the estate of someone who has died will need to submit a claim for Business Relief as part of the Inheritance Tax return. The process usually involves giving detailed information about the business’s assets, including valuations, ownership history and evidence of the business’s trading activities.

HMRC looks at each claim on a case-by-case basis to make sure the asset is eligible for the relief and all the information given is accurate. Taking professional advice can help you to make sure it all goes smoothly.
 

Why is estate planning important?

Business Relief is important in estate planning, particularly if you have quite a few business interests. Reducing the impact of IHT on business assets with Business Relief can make it much easier to transfer wealth from one generation to the next, whilst keeping a business ‘in the family’.

This type of relief can be really useful for entrepreneurs and investors who want to optimise their tax position during their lifetime. By making use of lifetime gifts and being smart about how your tax affairs are structured, it’s possible to use Business Relief to cut your IHT liability and maximise the value of your estate ready to pass on.

It’s well worth noting that there are other options too – such as creating a Family Investment Company (FIC).

What else should I consider?

While Business Relief offers significant benefits for estate planning, there are certain challenges and things to think about. For example:

• Complexity: The rules around Business Relief can be complex with eligibility criteria varying a bit, depending on the nature of the business assets.
• Changes in legislation: UK tax law changes fairly often, and any updates to tax legislation could affect your claim for Business Relief in the future. You’ll therefore need to stay in the loop about any changes so you can update your estate planning as needed.
• Valuation issues: Valuing business assets in order to claim Business Relief can be tricky, particularly for unlisted companies or businesses with more complex legal structures. But making sure your business valuation is accurate is really important, otherwise you could end up in a lengthy (and costly) dispute with HMRC.

 
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