For individuals looking to pass on wealth efficiently, estate planning is a crucial consideration. One valuable tool within estate planning for business owners is Business Property Relief (BPR), a relief from inheritance tax (IHT) in the United Kingdom. Originally introduced to help families preserve their businesses across generations, BPR has since become an essential part of estate planning for many business owners and investors. This article delves into what BPR is, how it works, and how it can be used as a strategy in estate planning.
What is Business Property Relief?
Business Property Relief (BPR) is a tax relief that can reduce or completely negate the inheritance tax liability on qualifying business assets when they are passed on after the owner’s death. Depending on the type of assets held, BPR can reduce the IHT rate from 40%, 20% or 0% in certain cases.
BPR applies to various types of businesses and qualifying business assets, and its primary purpose is to keep family-owned businesses intact when they are inherited, thus reducing the financial burden that IHT can impose.
How Does Business Property Relief Work?
BPR allows for certain business assets to qualify for either a 100% or 50% reduction in their taxable value. This relief applies after the assets have been owned for a minimum of two years. Here’s a closer look at the two levels of BPR:
- 100% Relief: This applies to businesses or interests in businesses, as well as shares in unlisted companies held on markets such as the Alternative Investment Market (AIM). However, from 6th April 2026 the relief will be limited to 50% on AIM shares and other unlisted shares.
Currently, if an individual owns a family business or a stake in an unlisted company, the value of these holdings can be entirely exempt from IHT, as long as they have been held for at least two years before the owner’s passing.
- 50% Relief: From 6th April 2026 this applies to shares in companies listed on the Alternative Investment Market (AIM) and other non-listed markets. Certain land and buildings, and other tangible assets used for business purposes. For example, if a business owner holds assets like machinery or equipment used in a family business, the value of these assets can be eligible for a 50% IHT reduction.
- Following the 2024 Autumn budget, from April 6th 2026, 100% relief will be limited to the first £1,000,000 for qualifying business assets, with 50% relief applying to the remaining value.
Qualifying for Business Property Relief
To qualify for BPR, assets generally need to meet specific criteria, including:
– Ownership Duration: The business property must have been held by the owner for at least two years prior to their death to qualify for relief.
– Trading Requirement: The business must be a trading business rather than one primarily for holding investments. For example, companies that generate profits through property rental may not qualify for BPR.
– Type of Business: BPR applies mainly to unlisted companies and family businesses, meaning those not listed on the main stock exchange. AIM-listed shares, however, can qualify, but see above regarding changes being implemented in 2026.
– Certain businesses are specifically excluded from benefiting from BPR:
- An interest in a not-for-profit organisation
- A business that mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
- mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
- An interest in a business that is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
- is being wound up, unless this is part of a process to allow the business of the company to carry on
It’s essential to review and understand these criteria as part of estate planning, as not all business-related assets will qualify for BPR. The exclusion of businesses that ‘mainly’ deal with investments, land and building, has an impact on many businesses, for example firms that hold a portfolio of properties.
The Role of BPR in Estate Planning
BPR can be an essential part of estate planning strategies, especially for business owners who want to pass on their companies or business interests without incurring substantial IHT liabilities. By reducing the IHT burden, BPR can allow families to retain more of their wealth, making it easier to continue the family business or maintain investments.
Here’s how BPR can fit into an estate planning strategy:
- Retention of Family Businesses: For families with generational businesses, BPR allows a seamless transition between generations, helping to avoid selling parts of the business to cover IHT expenses.
- Investment Opportunities: Individuals without a family business can still benefit from BPR by investing in qualifying AIM-listed shares or Enterprise Investment Schemes (EIS), which allow for IHT relief. However, it’s crucial to consult a financial advisor, as these investments come with risks.
- Flexibility and Control: Unlike many other IHT reliefs that require a gifting strategy (which removes assets from the individual’s estate), BPR allows the business owner to retain control over their assets while still achieving IHT savings.
- Potential Tax Savings for High Net-Worth Individuals: For high-net-worth individuals, BPR offers a practical way to reduce IHT exposure by ensuring that qualifying business assets are passed on at a lower IHT cost, providing more opportunities to protect wealth.
Potential Limitations and Considerations of BPR
While BPR offers significant tax relief, it is important to approach it as part of a well-rounded estate planning strategy. Some considerations include:
– Investment Risk: AIM-listed shares, which qualify for BPR, can be volatile, so individuals should carefully consider the risks before making investments for IHT purposes.
– HMRC Scrutiny: HMRC closely scrutinises BPR claims, particularly to ensure that the business meets the trading requirements and does not exist mainly to generate investment income.
– Regular Review of Assets: The relief status of assets can change over time, especially with businesses that might shift from trading to investment focus, so it’s advisable to regularly review business assets and their eligibility for BPR.
Seeking Professional Guidance on BPR
Given the complexities involved, it’s wise to consult with an estate planning or tax professional when considering BPR. Experts in inheritance tax can assess business assets, guide investment decisions, and ensure compliance with HMRC’s requirements for BPR eligibility. Working with a professional can make a substantial difference in ensuring that assets are protected and passed on in the most tax-efficient manner.
Business Property Relief (BPR) is an invaluable tool for individuals aiming to pass on business assets while minimising inheritance tax liabilities. Whether preserving a family business, making strategic investments, or achieving overall tax efficiency, BPR offers unique advantages within estate planning. By incorporating BPR into an estate plan, business owners and investors can protect their legacy and provide for future generations while navigating the complexities of inheritance tax. This work will invariably involve the use of Trusts, specifically Discretionary Trusts to help crystallise and preserve the available Relief.
For personalised advice on how BPR can fit into your estate planning strategy, Prestige Legal Services offers expert guidance tailored to your unique business and financial circumstances.