Business Relief for Inheritance Tax

Important paperwork sitting on a wooden desk with laptop and coffee

Do you know if your business would be eligible for Business Relief to reduce the Inheritance Tax liability when you die? Here’s what you need to know so you can plan your estate effectively.

What is Business Relief for Inheritance Tax?

Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid. Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.

You can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on either while the owner is still alive or as part of the will.

 

Qualifying for Business Relief

You can get 100% Business Relief on:

  • a business or interest in a business
  • shares in an unlisted company

You can get 50% Business Relief on:

  • shares controlling more than 50% of the voting rights in a listed company
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
  • land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Note: You can only get relief if the deceased owned the business or asset for at least 2 years before they died.

 

Why you may not qualify

You won’t be able to claim Business Relief if the company:

  • mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
  • is a not-for-profit organisation
  • is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
  • is being wound up, unless this is part of a process to allow the business of the company to carry on

In addition, you can’t claim Business Relief on an asset if it:

  • also qualifies for Agricultural Relief
  • wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
  • isn’t needed for future use in the business

It is worth noting that if part of a non-qualifying asset is used in the business, that part might qualify for Business Relief. For example, if you use one room in a building as a shop and the other rooms are used as your home, then you might get relief on the shop, but the other rooms won’t be eligible.

 

Agricultural property

If you have an agricultural property that is not eligible for agricultural relief, then you may be able to get Business Relief. You can find out more about agricultural relief on the gov.uk website here.

 

What about if I give away my business property or assets?

You can give away business property or assets while you’re still alive and the estate can still get Business Relief on Inheritance Tax, as long as the property or assets qualify.

 

Business Relief on a gift

If you give away your business property or assets, then the recipient must keep them as a going concern until your death if they want to keep the relief.

They can:

  • replace the property or assets – like machinery – with something of equal value if it’s for use in the business
  • only get relief if you had owned the business or asset for at least 2 years before the date it was given

 

7-year rule

Any gift made more than 7 years before your death doesn’t count towards your estate for Inheritance Tax purposes.

 

Guidance on Business Relief

You can find out more information about Business Relief for Inheritance Tax and how to make a claim on the gov.uk website.

 

Further information

If you found this information useful, you may also want to check out the following:

Do you know if your business would be eligible for Business Relief to reduce the Inheritance Tax liability when you die? Here’s what you need to know so you can plan your estate effectively.

 

What is Business Relief for Inheritance Tax?

Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid. Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.

You can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on either while the owner is still alive or as part of the will.

 

Qualifying for Business Relief

You can get 100% Business Relief on:

  • a business or interest in a business
  • shares in an unlisted company

You can get 50% Business Relief on:

  • shares controlling more than 50% of the voting rights in a listed company
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
  • land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Note: You can only get relief if the deceased owned the business or asset for at least 2 years before they died.

 

Why you may not qualify

You won’t be able to claim Business Relief if the company:

  • mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
  • is a not-for-profit organisation
  • is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
  • is being wound up, unless this is part of a process to allow the business of the company to carry on

In addition, you can’t claim Business Relief on an asset if it:

  • also qualifies for Agricultural Relief
  • wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
  • isn’t needed for future use in the business

It is worth noting that if part of a non-qualifying asset is used in the business, that part might qualify for Business Relief. For example, if you use one room in a building as a shop and the other rooms are used as your home, then you might get relief on the shop, but the other rooms won’t be eligible.

 

Agricultural property

If you have an agricultural property that is not eligible for agricultural relief, then you may be able to get Business Relief. You can find out more about agricultural relief on the gov.uk website here.

 

What about if I give away my business property or assets?

You can give away business property or assets while you’re still alive and the estate can still get Business Relief on Inheritance Tax, as long as the property or assets qualify.

 

Business Relief on a gift

If you give away your business property or assets, then the recipient must keep them as a going concern until your death if they want to keep the relief.

They can:

  • replace the property or assets – like machinery – with something of equal value if it’s for use in the business
  • only get relief if you had owned the business or asset for at least 2 years before the date it was given

 

7-year rule

Any gift made more than 7 years before your death doesn’t count towards your estate for Inheritance Tax purposes.

 

Guidance on Business Relief

You can find out more information about Business Relief for Inheritance Tax and how to make a claim on the gov.uk website.

 

Further information

If you found this information useful, you may also want to check out the following:

 

 

MRA help individuals, businesses and families achieve the best quality of life they can with the resources they have. MRA specialise in corporate solutions, cash-flow analysis, taxation, debt management, savings and investments, lifestyle planning and much more.

Business Consultants based in East Sussex we service clients across the South East, Sussex and Kent, including smaller towns such as Ashford, Battle, Bexhill, Bodiam, Brighton & Hove, Cranbrook, Crowborough, Eastbourne, Hailsham, Hastings, Heathfield, Herstmonceux, Lewes, Mayfield, Newhaven, Rye, Seaford, Sevenoaks, Tenterden, Tonbridge and Tunbridge Wells.