Business Property Relief: On death 40% of your assets are liable to Inheritance Tax (IHT), fortunately there is an individual threshold of £325,000 below which no tax is payable. This means that many people do not have to pay IHT. However if you own a business your allowance may have been allocated to your personal assets i.e. home, investments, savings etc. Resulting in ALL of your business being liable for IHT at 40%. This would mean that on death your beneficiaries would have to either sell the business to raise the funds to pay the IHT, or burden the business with a debt of 40% of its value (assuming that it was possible to raise those funds) alternatively raise funds from their own assets possibly remortgaging their own homes. In these scenarios it is unlikely that the business could continue or at best be restricted.
This would mean that not only would the economy suffer with businesses ceasing trading, but increased unemployment and reduced tax revenue.
Therefore the Inland Revenue has put in place Business Property Relief (BPR). This enables the business to be placed in to a Trust, which means that it does not become part of the individuals IHT liability. The beneficiaries retain control of the business, the staff remain employed and the Inland Revenue continues to receive income.
This is the reason BPR was setup this is not a loophole in legislation.
However full benefit of BPR may not be able be claimed if the relevant provision has not been made in a Will. This depends on the value of your estate and IHT Bands and Allowances in place at the time. This provision is not included in a Will unless you specifically requested it!
Many people are very focused on reducing their tax liability on an annual basis but overlook this simple solution to retain their lifetime’s work for the benefit of their beneficiaries and employees.
Think about how much you would pay to reduce your annual tax by 40% now think about how much you would pay to mitigate 40% IHT on your life’s work.
A Will with Business Property Relief can be set up for a few hundred pounds.