Can I claim Business Relief to reduce my Inheritance Tax liability?
Many of our clients ask us about Inheritance Tax, how much they will have to pay and if there is any way for them to reduce their Inheritance Tax liability.
There are a number of reliefs and mechanisms that can be used upon death, and before through Wills and Trusts, to reduce an Inheritance Tax liability and one of these is Business Relief.
As the name suggests, to be eligible for Business Relief the assets must have some link to Business of the deceased but let’s have a look at this in more detail…
What is Business Relief?
Business Relief can reduce the value of a business or the business assets when valuing it for Inheritance Tax purposes and calculating the amount of Inheritance Tax that is payable.
Any business owned, or part-owned, by the deceased, and any shares in a business are included in an Estate when valuing it for Inheritance Tax purposes but the Executor (or Administrator) of the Estate may be able to claim Business Relief of 100% or 50% depending on the nature of the business assets that were held by the deceased.
*It is important to note that in most cases, the business assets will need to be held for at least two-years prior to death to qualify for Business Relief.
What is eligible for Business Relief?
As mentioned, some Estates will qualify for Business Relief at 100%, this would include where the deceased owned a business, or part of a business, and any shares that are owned in an unlisted company.
*NOTE: this does not include shares owned in listed companies (on the London Stock Exchange, for example).
Where 100% Business Relief is not available, the Estate may qualify for Business Relief at 50% and this would be on business assets such as:
- shares which control more than 50% of the voting rights in a listed company;
- land, buildings and machinery owned by the deceased and that were used in a business that the deceased owned or controlled;
- land, buildings and machinery that were used in a business and held in Trust that it has the right to benefit from
Remember, that the Business Relief is only available on assets that were owned by the deceased for at least two-years prior to their death.
When Business Relief will not apply
An Estate will not qualify for Business Relief if the business owned by the deceased was a not-for-profit organisation, mainly dealt with securities, stocks or shares land and buildings or in making and holding investments, was being sold or is being wound up.
In addition, a business asset (land, building and machinery) will not qualify for Business Relief if it also qualifies for Agricultural Relief (see our blog in a couple of weeks on this!), was not used mainly for the business in the two-years prior to the deceased’s death or if it is not required for the future use of the business.
If you think that your Estate may qualify for Business Relief, or want to find out, it is important to seek specialist advice as this can make a huge difference when sorting out Inheritance Tax and the relevant forms that are required.
Alternatively, if you are an Executor (or Administrator) then you will know that you are under an obligation to maximise the Estate for the beneficiaries and therefore take advantage of all reliefs that are available to you. If you are unsure whether Business Relief applies (or indeed any other Reliefs) please seek the help of a specialist as this could be extremely beneficial to the beneficiaries and reduce the Inheritance Tax liability of an Estate enormously.
If you would like to have a free chat about your options, the Reliefs available, on your existing Will or in relation to making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121
Leah Waller
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