What is Business Property Relief?

Business Property Relief was introduced by the government in 1976. Back then, its main aim was to ensure that after the death of the owner, a family business could survive, without having to be sold or broken up to pay an inheritance tax liability. Since then, Business Property Relief has been varied to also encourage people to invest in businesses, regardless of whether they run the business themselves.

Not every investment will qualify for Business Property Relief, but this relief will typically be available for:

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Shares in an unquoted qualifying company, even a minority holding. An unquoted company is one that is not listed on a stock exchange.

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Shares in a qualifying company listed on the Alternative Investment Market (AIM)

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An unincorporated qualifying trading business, or an interest in one. For example, a partnership.

As Business Property Relief qualifying investments are much smaller than the large companies listed on the larger stock exchanges, such as the FTSE 100, there are tax reliefs that are offered by the government to encourage investment in these companies. These tax reliefs and benefits are:

Time to become free from Inheritance Tax

Making gifts or placing money into trusts usually takes seven years to become completely free from Inheritance Tax. However, an investment into a Business Property Relief qualifying company will become completely free of Inheritance Tax on the death of the shareholder if it has been held for at least two years at the time of death.

Access and Control

Owning Business Property Relief qualifying investments allows a client’s wealth to stay in their own name, so that the shareholder can retain complete access and control. Making gifts or placing money into trust can lead to you giving up access and/or control.

Use of the Nil-Rate Band

Business Property Relief qualifying investments do not use the nil-rate band. This provides investors with the ability to utilise their nil-rate band to reduce the inheritance tax charge on less liquid assets, such as their home, which are otherwise difficult to place outside of the estate for tax purposes.

What are the risks?

As there are several key tax advantages to investing in Business Property Relief qualifying investments, there are risks that you need to be aware of:

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Capital is at risk

To qualify for Business Property Relief, a company must not be listed on a main stock exchange. Such companies could fall in value, and investors may get back less than invested.

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Tax rules and reliefs can change

Tax rules could change in the future. The value of tax reliefs will depend on an investor’s personal circumstances. There cannot be any guarantee that companies that qualify for Business Property Relief today will remain qualifying in the future.

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Shares could be more volatile and less liquid

Investments in unquoted companies or those quoted on AIM can fall or rise more sharply than shares in larger companies listed on the main markets. Furthermore, as they are not listed on the main markets, they may be harder to sell.

Business Property Relief Schemes (BPR) invest in assets that are high risk and can be difficult to sell, such as shares in unlisted companies. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

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