Business Relief can be an excellent means of reducing the amount of Inheritance Tax your beneficiaries might have to pay on receipt of your assets in the event of your passing or during your lifetime.
Previously referred to as Business Property Relief, this is a government exemption that can be claimed when ownership of your property or other assets is being transferred. In order to qualify for the Relief, those assets in question must have been held by you for at least two years prior to their being transferred.
Rates of Business Relief and what assets qualify
Business Relief is given by HMRC at a discount of either 50 per cent or 100 per cent (at market value of the asset), depending on how that asset is classified. For instance, ‘shares in a company with voting rights of more than 50 per cent’ would receive 50 per cent relief, as would ‘land, buildings or machinery’ provided the individual was a partner or controlled the business. A business – or interest in a company – would qualify for 100 per cent relief, as would shares in a company which was unlisted.
Property investment businesses aren’t eligible for Business Relief
However, there are other stipulations for claiming Business Relief. Not surprisingly, it isn’t always easy to get – especially when it comes down to a property investment business. That’s because HMRC states that there are certain businesses which aren’t directly eligible for business relief. And one of those is “a company which mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments.” In other words, property investment businesses which, by their very nature, involve buying either buildings or land, definitely don’t qualify for Business Relief. That’s regardless of whether they are commercial or residential-property focused.
Other businesses which aren’t eligible to claim Business Relief include not-for-profit companies (i.e. charities and voluntary agencies), as well as businesses that are currently being sold or wound up indefinitely.
How to be in property investment and still get Business Relief
The fact that property investment businesses aren’t eligible for Business Relief is disheartening news. But what if your business wasn’t property investment, but rather property development? Or at least, more than half of your income was down to property development rather than property investment? That just might be a completely different story.
That’s because it is only businesses that are ‘wholly or mainly’ involved in holding investments that are banned from claiming Business Relief. If the majority of your property business was in development, then it wouldn’t be classed as an investment business. Is it time to diversity perhaps?! Certainly, if you want to be eligible for Business Relief, then it could be an idea worth considering.
Always get expert help when it comes to tax matters
Of course, if you were considering this plan of action, then the best idea would certainly be to speak to a tax planning expert. He or she will be able to take you down various financial tax relief avenues and help advise on which would be the best for your particular situation.