Business Property Relief and inheritance tax planning for business owners

Victoria Cross, associate solicitor in Harrison Drury’s private client team, looks at how Business Property Relief could assist business owners when planning for the future.

If you have shares in a private trading company and have held those shares for more than two years, there is a specific inheritance tax relief which may be available to you and your estate known as Business Property Relief (BPR).

The availability of Business Property Relief (BPR) can mean that no inheritance tax will be payable in respect of your shares in the event of your death. BPR can also be applied to premises owned by the company or a majority shareholder.

However, in order to secure BPR it is crucial that you seek proper advice. I work closely with our commercial team to ensure company documents reflect the wishes of the respective shareholders on death.

For example, on death, would you want your spouse or partner to inherit your shares? Or would you want your shares to remain in the company and your partner to receive the sale proceeds of the shares? If so, will the company have the funds with which to buy your shares from your estate?

These are all matters which need to be considered and on which our team at Harrison Drury can advise.

A shareholders’ agreement or partnership agreement operates in conjunction with your will to ensure your business interests pass how you wish in the event of your death.

Should your spouse inherit the sale proceeds rather than the shares, BPR will not be available upon their death and inheritance tax planning should be considered.

If a trust is included in your will and the shares directed into trust, the trustees can have the power to sell the shares to the company, the sale proceeds can pass into the trust and could therefore be ring-fenced from your spouse’s estate for inheritance tax purposes upon their death. As inheritance tax is paid at a rate of 40% this could lead to a substantial tax saving.

Should you wish to discuss this further, please contact Victoria in our private client team on 01772 258321.