Business Property Relief (BPR) stands as a pivotal area in the ACCA Advanced Tax exam, wielding significant implications for Inheritance Tax (IHT). Offering a potential exemption from taxation, BPR renders business assets either entirely or partially tax-free under IHT regulations.
Delving into its mechanics, BPR extends a 100% exemption on a spectrum of business assets, encompassing sole trader or partnership holdings like land, buildings, and goodwill. Moreover, unquoted shares, including those listed on alternative investment markets, earn the same exemption provided they represent trading companies. In the realm of quoted companies, controlling shareholdings qualify for a respectable 50% relief.
Further, BPR extends to assets like buildings and machinery owned by the donor and utilized by a company they control or a partnership in which they hold a stake, granting them a 50% relief. While typically requiring a two-year ownership period, exceptions soften this rule. Notably, combined periods of ownership by spouses, replacement assets, and successive transfers can mitigate this criterion.
However, BPR’s application faces constraints when it comes to certain types of assets held within trading companies. Assets like rental buildings or surplus cash exceeding working capital requirements fall under the category of “excepted assets” and thus do not qualify for relief.
Zooming out to consider group structures, BPR scrutiny extends beyond individual subsidiaries to encompass the holding company. For holdings to qualify, a robust 51% of activities must constitute trading endeavors, paving the way for BPR eligibility.
Notably, BPR’s scope transcends national borders, extending relief to worldwide businesses. This relief applies automatically to both lifetime transfers and the estate of the deceased.
When considering lifetime transfers, BPR hinges on the continued ownership of the business asset by the donee until the donor’s death. Deviating from this trajectory, such as selling the asset prematurely or transitioning from trading to investment activities, can trigger withdrawal of previously allocated relief.
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