Business property relief can prevent your executors and beneficiaries having to pay an inheritance tax bill on the value of your business. However, it’s not well known that the tax relief is wider than this. What other assets can it apply to?

Business assets

It’s probably some comfort to know that if the worst happened to you that your beneficiaries wouldn’t have to pay IHT on the value of business assets included in your estate. HMRC calls this business property relief (BPR). Where your business is run through a company your shares can count as business assets and so will qualify. But it might surprise you to know that BPR can also apply to some assets you consider personal.

BPR rates of relief

For qualifying company shares BPR reduces the value of an asset chargeable to IHT by 100%, subject of course to the usual conditions. But there’s also a 50% rate of BPR which applies for personally owned assets which are used in the company’s business. This half-rate relief is usually claimed for land or buildings.

Example. Robert is the majority director shareholder in Acom Ltd, an engineering firm. He owns the freehold to the building from which Acom trades. Robert dies in April 2020 and the value of the freehold at the time is £100,000. BPR reduces the amount chargeable to IHT by 50% to £50,000. This saves his estate £20,000 in IHT (£50,000 x 40%).

Personal assets

In our example the arrangement for the business premises should easily be picked up by the executor when filling out the IHT forms. However, they might not give Robert’s £40,000 Range Rover a second thought before recording it as a personal asset and handing over IHT to HMRC.

Tip. If Robert “wholly or mainly” used the Range Rover for work, it will qualify for 50% BPR, which would mean HMRC receives £16,000 less and his beneficiaries that much more.

Conditions

Personally owned assets qualify for 50% BPR if:

  • the owner controls the company, e.g. has more than 50% of its voting rights, in which they use the asset
  • it’s wholly or mainly used for the business for the two years immediately before death; and
  • it is machinery, plant, land or buildings.

Evidence

While you don’t need to provide evidence with the IHT forms that a car or any other machinery etc., was used in the business, HMRC may later ask for proof. For assets such as a building that will usually be simple, but for machinery and plant it could be more tricky.

Tip 1. Business mileage claims shown on personal tax returns or held by the company, along with service or MOT records showing total mileage, is good evidence of business use.

Tip 2. Before signing off IHT forms spare a thought for what other assets the deceased might have used in their business. Perhaps the home garage was used as their workshop?

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.