Business Property Relief (BPR) is a powerful tool for business owners in England and Wales, offering the potential to reduce or even eliminate Inheritance Tax (IHT) on qualifying business assets. With careful planning, BPR can help you pass on your business to the next generation without forcing a sale to pay a tax bill. However, the rules are detailed and there are several common pitfalls that can catch families out.

What Qualifies for BPR?

BPR is available on a range of business interests, but not all business assets will qualify. The main categories include:

• Unquoted shares in private companies: This includes most family businesses and owner-managed companies.

• Shares listed on the Alternative Investment Market (AIM): AIM shares are treated similarly to unquoted shares for BPR purposes.

• Land, buildings, or plant and machinery used in a business, either owned by a sole trader, partnership, or held personally and used by a company you control.

• Interests in a partnership or sole trader business.

To qualify, you must have owned the asset for at least two years before death or transfer. The business itself must be actively trading—BPR is not available for businesses that mainly deal in securities, stocks, land, or buildings as investments, or that are not trading for gain.

How Much Relief Can You Get?

• 100% relief is available for:

  • Unquoted shares in trading companies

  • Interests in a partnership or sole trader business

• 50% relief may apply to:

  • Shares in quoted companies where you have voting control

  • Land, buildings, or plant and machinery used in the business but owned by someone other than the business (for example, a director or partner personally)

Common Pitfalls and Ambiguities

BPR is generous, but there are several traps to watch out for:

• Investment businesses do not qualify: If your business holds too much cash, owns investment property, or mainly invests in shares or securities, you could lose BPR on all or part of the business.

• Excess cash: Surplus cash not needed for day-to-day trading can be excluded from BPR, especially if it is not earmarked for a specific business purpose.

• Different share classes: Not all shares are equal—some may not carry voting rights or may not qualify for full relief.

• Let property: Property letting businesses are generally treated as investment businesses and do not qualify for BPR, even if you are actively involved in management.

• Recent changes in ownership: If you have acquired the business or shares within the last two years, BPR may not be available unless you inherited them from a spouse or civil partner who also qualified.

Planning for the Future

To make the most of BPR, it’s important to plan ahead:

• Review your business structure and activities regularly: Ensure your business remains a trading business and does not drift into investment activities.

• Keep clear records: Document how assets are used in the business and the purpose of any significant cash holdings.

• Consider trusts: Trusts can be used to pass on business assets while retaining some control, but must be structured carefully to preserve BPR.

• Update your plans: BPR rules and HMRC’s approach can change, so review your arrangements after any major business or personal changes.

Why Regular Reviews Matter

BPR is not automatic, and eligibility can be lost if the business changes direction, acquires too much cash, or if assets are restructured. Regular reviews with a focus on both business and personal circumstances are essential to keep your plans on track and your business protected for the next generation.

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Disclaimer: This blog post provides general information for educational purposes only. It is not legal advice. Outcomes can vary based on your personal circumstances.