When giving inheritance tax advice to clients, the most important exemption is business property relief which makes worldwide businesses tax free from inheritance tax.

100% relief is available on the following assets:

  • Any unincorporated business (sole trader or partnership)
  • Any unquoted trading company shares (including shares listed on the alternative investment market (AIM)

50% relief is available on the following assets:

  • Controlling interest (51%) in a quoted trading company
  • Buildings or machinery owned by the donor and used by a partnership where the donor is a partner, or a company controlled by the donor.

The business asset must be owned for 2 years in order to be eligible for BPR.

The 2-year requirement is relaxed under certain rules:

  • Replacement Rule- if one business is replaced by another then BPR is available on the replacement if it has been owned for at least 2 years out of the last 5 years.
  • Spouse Rule -spouses can be viewed as a single person so as long as the combined ownership period is at least 2 years then BPR is available.
  • Successive Transfer Rule – BPR is available on the second transfer if BPR is available on the first transfer and the first transfer was on death.

With regard to lifetime gifts , BPR is only available on death if the donee still owns the asset on death.

Alternatively , to preserve the BPR , the donee must reinvest 100% of the sale proceeds in a replacement asset within 3 years.

If the business owns investments , BPR is restricted to the business assets.

HMRC will deny BPR if there is a binding contract for sale.

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