Business Property Relief for Inheritance Tax Planning? How It Works

Business Property Relief is a vital tool in the IHT planning arsenal, offering huge IHT reductions with minimal loss of control. Could this be the right strategy for you?

Business Property Relief
Business Property Relief

Inheritance Tax Planning Strategies

Despite predictions from experts and government consultations, Inheritance Tax (IHT) was untouched in the recent budget. This is welcome news to many because it means that current IHT planning strategies are still useful.

In particular, the strategy of giving away large gifts to remove assets from your estate is still workable. Providing you live for seven years after making the gift, the gifted assets will not be subject to IHT.

However, although the simplicity of this strategy makes it very popular, many people don’t want to give away their assets. This is especially true when it comes to property.

When you want to hold on to your property, Business Property Relief can be a great help.

Business Property Relief means that a property may be exempt from IHT if held by trading businesses or an unlisted company.

Keeping your home until death will allow you to attract the Capital Gains Tax uplift, meaning that there is no CGT liability for the property.

When combined with Business Property Relief, you can keep your home until death and pass it to your beneficiaries without incurring IHT or CGT.

But this raises an important question. What do you do if your company is going to sell the property before you die?

Business Property Relief, IHT and Trusts

The CGT uplift only applies when property is transferred upon death. If you sell during your lifetime, the uplift is no longer available. Thus, the money from the sale will be subject to IHT on death.

This leads many back to the seven-year rule. It is well worth considering gifting away your shares in your company so that they fall out of your estate. However, this is still often an undesirable solution.

You are once again faced with the prospect of losing control of your assets. For many, this is unthinkable.

Fortunately, Business Property Relief can still provide a solution when combined with a trust.

In most circumstances, you’ll be hit with a 20% IHT charge when placing assets worth over £325k into a trust. However, if you can claim Business Property Relief, you can place your home into a trust without incurring that charge.

By going through a trust, you can remove the value of your home from your estate without increasing the size of anyone else’s’ estate. In this position, you can also maintain control over the asset by directing the individual or company who holds it.

With this technique, you can keep control of your home until you die and reduce your IHT burden considerably.

This won’t entirely negate IHT. HMRC will charge you IHT of 6% of the value of the property over the nil-rate band every ten years.

What Now?

Business Property Relief is just one of many tools available for IHT planning. At Tax Expert, we can tailor your IHT plan for your specific goals and circumstances, making sure that the taxman won’t be the biggest beneficiary of your estate.

Contact us today at 01772 788200 to book a friendly consultation and learn how we can help you protect your wealth for your beneficiaries.

Kind regards Ilyas