General Guidance

Business Property Relief (BPR) is only given on relevant business property and which can be summarised as follows:-

-    A business or an interest in a business i.e. Sole Trader or Partnership;
-    Securities of a company which are unquoted and which gave the transferor control of the company immediately before the transfer;
-    Any unquoted shares in a company;
-    Shares or securities of a company which are quoted and which gave the transferor control of the company immediately before the transfer;
-    Any land or building, plant or machinery which, immediately before the transfer were used wholly or mainly for the purposes of the business being carried on by the transferor either solely, in partnership or by a company of which he then had control;
-    Any land or building etc. outlined above but where the property was settled property in which the transferor had an interest in possession.


In relation to the first three classes above, relief is available at the rate of 100%. The rate is reduced to 50% in relation to the other three classes.

In order to qualify for relief the property must have been owned throughout the two years prior to the transfer.

Relief is not available where the business consists wholly or mainly of:-

-    Dealing in shares or securities;
-    Dealing in land or buildings (this does not include genuine property development);
-    Making or holding investments.

Lifetime gifts and BPR

Care needs to be taken when advising in relation to lifetime gifts of assets qualifying for BPR. It is often necessary to consider the circumstances of the transferee.

The reason is that, should the transferor die within 7 years of the gift, it is necessary to consider whether or not the relief continues to apply. If not the value of the gift will be brought back into the charge to IHT.

The conditions to be satisfied in order for BPR to be maintained are that:-

-    The property has been owned by the transferee throughout the period to the date of death of the transferor; and
-    The property still represents relevant business property.


Consider though Mr X, a widower, who has one son. Mr X owns his own home worth £500,000 and has cash of a further £500,000. Mrs X died several years ago and at the time of her death did not utilise any of the IHT exemption available to her.

The sole beneficiary of Mr X’s Will is his son who runs a moderately successful unquoted trading company. He is the sole shareholder. The business is operated from a factory, owned by the company, and which is currently worth £1m against which there is a mortgage of £400,000. The company shares, of which there are 100 currently in issue, are valued at £10,000 per share.



Mr X is 89 and in failing health. He is conscious that, unless he takes any remedial action, there is a potential liability to IHT of approximately £160,000 which will arise on his death. He is unlikely to survive the requisite

7 year period attaching to most forms of lifetime gifts.

Mr X decides to take advice and the following suggestion put forward by Moore Blatch Solicitors:-

-    Son’s company increases its authorised share capital; and
-    Mr X subscribes for 30 shares at a cost of £300,000.

As a consequence the company is able to redeem 75% of the outstanding mortgage on the factory.

Unfortunately Mr X dies just over 2 years later. However, the value of the shares now held, being shares in an unquoted trading company held for 2 years or more, now qualify for 100% Business Property Relief from IHT.

The IHT position on Mr X’s death is therefore as follows:-

House                                                    £500,000
Company shares                                     300,000
Cash                                                        200,000

Total estate                                           1,000,000

Less:
100% BPR                                             (300,000)
Mr X IHT Exemption                              (350,000)
Mrs X IHT Exemption                            (350,000)

Taxable estate                                                  0


Authors Robert Arnold ( Source IFA ) and Andy Kirby (Moore Blatch Solicitors)

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