A really useful little relief for inheritance tax planning is Business Property Relief. It’s excellent for passing on family-owned businesses down the generations, but there are other investments which qualify too.
Business Property Relief explained
There are two main kinds of qualifying asset:
- Shares in a business you control and manage
- Shares in an unlisted company
If you hold these assets, the value of them will not be counted as part of your estate for inheritance tax planning, saving potentially 40% tax, and in some cases, having to sell the business to pay the tax. In order to be sure that the business property relief will apply you must:
- Hold the qualifying assets for at least two years before you die, and
- Still hold them at the date of death.
You can pass on shares in, for example, the family business to your beneficiaries before you die. If you do this, in order to qualify for the relief, the recipients of the shares must continue managing the business as a going concern until you die, or for seven years. After this period of time, the gift of the shares falls out of the estate for inheritance tax purposes anyway.
Packaged BPR investments
Whenever there’s a cute little relief like BPR up for grabs, investment companies will find ways to take advantage – that’s capitalism, baby! And it’s true, there are many packaged products available which do this.
They usually involve setting up a trading company for you to buy shares in. Either the company will be aiming for growth, but very often these investments target low growth and (supposedly) low risk. But remember:
- You should always know what is actually going on under the bonnet. What is the trading company actually doing? What are they buying and selling?
- The investment could be illiquid, that is, hard to get your money out of should you need to
- If you do need to take your money out, you will lose the BPR benefit
I’m always a little worried that these packaged investments are a bit contrived, and that they may come unstuck if the Revenue decides to change the rules in the future.
But that little concern aside, you should definitely look to take advantage of business property relief if you can, adn if inehritance tax is a concern.