Business Relief and Inheritance Tax - maximising the benefits

What are the qualifying conditions for Business Relief?

Ownership

The business asset must be held for two years prior to transfer on death, or still be held by the recipient at death if a lifetime transfer, which was not survived by seven years (the asset in question must still meet the qualifying conditions).

Trading

The business must be wholly or mainly trading, so cannot be mainly involved in investment activities.

Excepted assets

The relief is restricted by the value of any excepted assets, being those that are not being used wholly or mainly for business purposes throughout the two years prior to transfer. For example, excess working capital or group companies used to hold investments.

Common pitfalls we can help with

Excess working capital

We often see businesses that have cash reserves significantly in excess of their current and future working capital needs. We’ve worked with a number of clients to devise the most tax effective methods of correcting this, as well as helping them to document the working capital requirements of the business, to minimise the IHT exposure. 

Appearance

While businesses and assets may appear to meet the conditions to qualify for Business Relief, we’ve had cases where, on closer review, an asset or company within a group will not qualify (for example an unused factory of a trading company) and will therefore restrict the availability of relief. We’ve successfully worked with clients to demerge excepted assets/companies out of the business, which can be implemented tax neutrally and result in additional benefits to simply ensuring Business Relief is available to the remaining business.

Binding contracts

Most business owners want to ensure their loved ones receive the value of their business interest on their death, so will include a requirement for the business or surviving business owners to acquire their interest at the market value at death (within the shareholders’ or partnership agreement). Such binding requirements are common but will result in Business Relief not being available on the value of the business interest. This should be easily correctable by using cross-options instead of binding contracts.

How we can help

Investment in assets qualifying for the relief is just one of the many options we consider with clients when carrying out a holistic estate planning exercise. 

Our tax experts will review your business and the balance sheet to see if this meets the qualifying conditions for Business Relief, and if any assets used in the business will qualify. We’ll then help you to apply for the relief and can also make recommendations for securing Business Relief where it does not currently apply.

For you and other individuals with interests in the business, we’ll review your current position and IHT exposure from a personal perspective and advise on the best estate planning approach tailored to your unique circumstances, to minimise your tax bill wherever possible. 

As we have both personal and corporate tax specialists working under one roof, we take a cohesive approach, enabling us to advise on the position for both you and your business, and take any suitable steps to maximise the relief.

Get in touch

Whether you are looking for general estate planning advice or have business interests which you are keen to secure Business Relief on, please fill out the form below and one of our experts will be in touch to discuss your requirements and how we can help.