Maximising the Effect of Business Property Relief (BPR)

Business Property Relief

Business Property Relief (BPR) is a very valuable tax relief as it takes the value of the business property outside the scope of the Inheritance Tax (IHT) net – but consider how the relief can be maximised by implementing some basic planning.
Example 1
Alan died in August 2013 leaving the following estate:

Home (jointly held with spouse) £325,000
Unquoted shares in family trading company £600,000
Quoted shared and cash £900,000
TOTAL £1,825,000

On Alan’s death his half share in the house passes to his surviving spouse (Maureen) who was well provided for as sole beneficiary of his self-employed pension plan and had personal savings herself of £250,000
Alan’s will left £325,000 cash to his two children and the residue of his estate to his spouse Maureen.
For IHT purposes, the cash gifts to the children are covered by his IHT Nil Rate Band of £325,000 and the balance of his estate passes to Maureen exempt from IHT due to the spousal exemption – there is no IHT payable on Alan’s death.
The question of BPR on the unquoted trading company shares did not arise.
Second death  
Maureen died in April 2016 leaving her whole estate divided equally between the two children. Assuming that the value of her assets remained unchanged from August 2013, she would leave the following estate:-

Home £325,000
Unquoted shares in family trading company £600,000
Quoted shared and cash £825,000
TOTAL £1,750,000

If all qualifying conditions were met and the unquoted trading company shares qualified for BPR, her estate would attract an IHT charge of £330,000 after accounting for her own nil rate band (* the new main residence nil rate band has been ignored for illustration purposes here).
Better Planning
To achieve a better outcome, the assets in Alan’s estate could be distributed in a different way – either by an amendment to his will during lifetime or via a Deed of Variation post death.
If the children, instead of sharing £325,000 from their father’s estate, shared equally in his unquoted trading company shares – qualifying for 100% BPR, and the residue of his estate passed to Maureen, there would be as before no IHT payable on Alan’s death – but now his IHT Nil Rate band has not been utilised and is available for Maureen on her death.
In February 2014, a few months after Alan’s death, Maureen bought the unquoted trading company shares from her children at their full value of £600,000 thus providing the children with more cash than they had originally expected to receive from their father’s estate.
On Maureen’s death in April 2016, assuming again the value of her assets had remained unchanged, she would leave the following estate.

Home £325,000
Unquoted shares in family trading company £600,000
Quoted shared and cash £550,000
TOTAL £1,475,000

Maureen’s estate would benefit not only from her own £325,000 nil rate band but also from the transferable nil rate band which had been left unused by Alan. Assuming the qualifying conditions for the unquoted shares were met such that, they qualify for 100% BPR, her estate would attract an IHT charge of £90,000 – a saving of £240,000 to the original example above.
Conclusion
If there are Business Property Relief qualifying assets within an estate, consideration should be given to leaving these to other beneficiaries rather than the surviving spouse as the spouse exemption is not needed to use against such assets.
For more information on Business Property Relief and estate planning generally, contact me at paul.dell@raffingers.co.uk.
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