Will My Business Sale Qualify For Business Property Relief?Written on February 11, 2016 by Kirk Rice LLP
Financial Services QuestionsThe Question:
I am 75 years old and after taxes will receive £2m for the sale of my business. My accountant mentioned BPR and suggested I seek advice about inheritance tax. I want my family to have as much of this money as possible after my death.
Kirk Rice LLP answers:
The value of the business would qualify for 100% Business Property Relief (BPR) and therefore no inheritance tax would be due. Once you give up the business shares, the cash will be at risk of loss to inheritance tax (at 40%). If you reinvest in another business within 3 years of the sale, that value may again qualify for 100% BPR immediately. Assuming you want to put your feet up and ‘retire’, don’t want to leave the UK and wish to invest you could have a specialist investment manager choose and monitor a portfolio of shares that qualify for BPR on your behalf.
Company shares on the FTSE listings do not qualify for BPR, but those traded on the Alternative Investment Market (AIM) can. Not all business activities qualify for BPR and companies will lose or qualify for BPR as their businesses change. AIM provides wider accessibility for young and developing companies that are seeking to sell shares, while maintaining a regulated and orderly market. This type of investing is considered relatively high risk, compared with investing in larger, more established companies and good research is essential in making investments: as the number of potentially qualifying shares may be low; smaller companies may not pay regular dividends; are considered at higher risk of failure; the shares may not be traded daily and price movements can be very large.
Many people feel more comfortable investing in up and coming businesses than passing 40% of the money in tax on death. If you have ISAs these could also be invested in BPR qualifying shares making the investment truly tax efficient. Many people believe ISAs are exempt from Inheritance tax, however, I remind everyone this is not true. Your company could consider an employer contribution to your existing pension plan. A pension plan is exempt from inheritance tax and would enable a diverse portfolio of investments, including shares on the main FTSE listings, to be held until death too. You should take advice as to whether your company can make a pension contribution as a tax deductible business expense. You are unable to obtain tax relief on personal contributions as you are age 75.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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