Where an estate administration has business assets as part of the Estate Administration, it is important that both executors and trustees are aware of ‘Business Property Relief’ (BPR), and how this relief works. If BPR is available, it could reduce the potential liability to Inheritance Tax.
Depending on the business assets and what they consist of, BPR can be available at either 50% or 100% reduction in IHT, and this relief can be utilised whether the transfer of business assets takes place on death or during somebodies’ lifetime.
The claim for BPR is made by completing schedule IHT413 (see additional articles). This schedule forms part of the IHT400 form (the form required to be completed in order to calculate the amount of IHT payable after someone’s death) this forms part of the administration process.
The personal representative will have the responsibility of valuing all the assets of the estate if IHT is to be met. It is especially important to ensure that all valuations are accurate, so the right amount of IHT is calculated. It is almost certain in these circumstances that the personal representative will need a professional valuation of the business assets. This needs to be the open market valuation of the assets, as at the date of death.
It is our policy in these circumstances to ensure that a copy of this valuation is submitted with the appropriate IHT400 forms.
Generally, BPR can be claimed on business assets, such as property and buildings, unlisted shares and machinery, whether you comply for 100% relief or 50% relief, will depend on what the business assets consist of.
100% relief is available if;
The value of a business and shares is in an unlisted company.
50% relief is available on if;
Shareholdings controlling more that 50% of the company’s voting rights, in a listed company. This is very rare indeed.
Land, buildings or machinery which is used in the business where the person was a partner or controller.
Land, buildings or machinery used in the business held in trust, which the person had a right to benefit from.
It is important to know that these reliefs are only available if, the person involved had owned the business for at least 2 years before the transfer takes place.
There are several exclusions, where it will not be possible to claim the BPR, again professional advice should be obtained.
There are also further rules where the asset is also eligible for agricultural relief. Again, professional advice should be obtained.
In our experience the personal representative, or the firm making the application for the relief to the HMRC, will have to show that the assets involved were used mainly for business purposes.
Please note also, the relief would not be available if the assets involved will not be needed for the future running of the business.
It is very important that the personal representatives get the right advice when there is a transfer of a business asset. It will be the responsibility of the personal representatives to ensure that the assets are administered correctly, and that they are dealt with as tax efficiently as possible, it is not just BPR that they will need to consider, but there may well be other tax liabilities which should be administered.
Please note that personal representatives could be personally liable if they make a mistake, or any trust involves suffers a loss as a result, even if this mistake was completely unintentional.
This is a tricky part of the law in relation to tax, and as we have said in this article, professional advice should be obtained.
If you need advice please contact us.