The clear and stable tax system in place has supported many family businesses to make long-term decisions that are right for their businesses, avoiding short-term tax motivated decisions that undermine their ability to positively contribute to boosting the UK’s long term economic growth.
The Two Reliefs Business Property Relief and Gift Holdover Relief exist to reduce tax liabilities when a business or its assets are being transferred from one owner to another. The principle guiding both is to enable businesses and business assets to be passed on to other owners, without incurring a tax charge, retaining value in the business to drive future investment. BPR This is used by owners and members of family businesses to reduce the Inheritance Tax liability when shares in the business or its assets change ownership due to death or being gifted. There are two rates at which BPR is applied, with assets entitled to either 100% or 50% relief:
Qualifies for BPR at 100%
Qualifies for BPR at 50%
A business or interest in a trading business.
Shares controlling more than 50% of the voting rights in a listed company.
l
l
Shares in an unlisted trading company, and those on the Alternative Investment Market (AIM).
l
Land, buildings or machinery used in the business (either owned by somebody or held in trust).
l
Table Two: BPR qualifications
Alongside differences in which the rate of relief is applied, there are key conditions that must be considered before concluding that a business or its assets are eligible for BPR. These include:
l Length of ownership. The owner of the estate subject to IHT must have been owned by the business (or business assets) for at least two years before they died.
l Type of company activity. A business is not eligible for BPR if its main dealings are of a certain type (e.g. mainly dealing with stocks and shares) or if it is being wound up.
l Type and use of assets. An asset is not eligible for BPR if it also qualifies for Agricultural Relief, was not used for business in the two years before it was either passed on as a gift or part of the will, or if it is not needed for future use in the business. GHR Although less commonly used, GHR defers the tax liability when a family business owner gives away shares or assets in the business, or sells them below market value, as they may do when passing down a business. Like BPR, there are conditions that must be considered when understanding whether a business or its assets qualify for GHR:
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