Why business relief exists?

Business relief consists of those investments that can be passed on for free from inheritance taxes. This happens usually after the investor dies and the shares have at least been owned for two years at the time. 

Why Business Relief exists?

Business relief previously known as Business property relief since its introduction in the 1976 Finance Act has come a long way. The main aim during that time was to ensure that after the owner dies, the family-owned business could make its survival as a trading firm. This will help the business from getting sold or broken due to the inheritance tax liability. With time, the governments have understood the value of motivating people to invest in a trading businesses. This is regardless of whether they run the business on their own or with someone else.

Business property relief has been in existence for the past forty years. However, one must always remember that the value that investment has might go down or up. As a result, you either get more or may get less. The tax rules might also change in the future and the amount of tax reliefs solely depends on the situations. 

Types of business that typically qualify for BPR

Not all kinds of investments or interests in business will qualify for business property relief. However, the businesses which can qualify for BPR are mentioned below:

  • Shares in a minority holding or an unquoted but qualifying company
  • Unincorporated trading business
  • Shares in a good qualifying company that is listed on the Alternative Investment Market

The UK government recently decided to allow the AIM-listed shares to be included under the Individual Savings Account. This implies that the investors too can hold BPR qualifying shares.

BPR as part of an estate planning strategy

Investing in business property relief shares can be helpful if one fits any of the below-mentioned categories.

You want the money you invest to be free from inheritance tax

Many individuals stay away from traditional estate planning methods as these methods take seven years before becoming exempt from inheritance tax. With the help of a BPR qualifying investment, the shares that you have become a hundred percent exempt from inheritance tax  after the holding period of two years is over. 

You don’t want to give large sums of money

You have the option to give your money to reduce the estate value. But some individuals are not comfortable with this method. With businessproperty relief qualifying investments, the shares are in your name and you can continue to keep the assets.

You want to give the inheritance the chance to grow

If you invest in BPR qualified companies, then there are chances that the value of the investments will grow. However, like other investments, this also does not guarantee anything and there are chances that you can lose some of the money that you have invested.

What are the risks involved?

Capital is at risk

To qualify for business property relief, the company should not be listed on the main stock exchange. The value of such companies could fall and the investors might get much less than they had already invested. 

Tax rules and reliefs can change

There can be changes in tax rules in the future. The value of the different tax reliefs will be dependant n the personal circumstances of the investor. There is no guarantee that the company which is BPR at the moment will qualify to be so when you die so this must be kept under review. 

Shares could be more volatile 

The investments in quoted companies on Aim or the unquoted companies can rise or fall more sharply than the big companies that are listed on the main stock exchange. It also may be harder to sell too.

Hence these are some aspects of business property relief that you must learn and understand so that you can make the best decisions regarding your capital and how you invest them. 

Like all aspects of inheritance tax experienced advice is essential

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