Business Property Relief: new Inland Revenue measures bring clarity

One of the most difficult issues when advising clients on the transfer of business assets either during lifetime or on death can be in determining whether or not those assets qualify for what is called “Business Property Relief” (BPR). BPR is given on qualifying assets at a rate of either 100% or 50% of its value and can make a substantial difference to an individual’s liability to inheritance tax. For example, if you hold shares in a trading company worth say £1 million without BPR up to £400,000 of inheritance tax could become due. If BPR was available at 100% no tax would be payable on the value of those assets.

In the past Wills have been drafted with different forms of wording to try and force the Revenue into confirming that assets qualify for BPR. Until recently the Revenue have been singularly unwilling to oblige and it has left clients in the position of not being completely certain until tax becomes due. The difficulty arises where a business undertakes different types of work, some of which clearly qualifies for BPR and some of which doesn’t. There is a great deal of case law in this area and an opinion from the company’s accountant should always be taken. It is however, not an exact science and it can be the case that whilst the company’s accountant believes that the business qualifies for 100% BPR the Revenue may well take a contrary view. The impact of this on an individual’s inheritance tax liability could be considerable and in the past has caused problems in being able to advise clients as to the best way of structuring their affairs.

It appears that the Revenue have eventually understood the difficulties which this has caused and in the last couple of years have brought in an inheritance tax clearance service for business owners. Please find below their website address for more information.

http://www.hmrc.gov.uk/cap/clearanceiht.htm

The website appears very positive and the mission statement makes promises which one hopes will be fulfilled. Of course, the proof of the pudding is in the eating but early indications from the cases we have seen suggest that the Revenue are in fact able to deliver on those promises.

The Revenue themselves state that the purpose of the clearance service is to provide certainty for businesses operating in the United Kingdom as to whether assets which are subject to a transaction qualify for BPR.

The intention is that you will have a response within twenty-eight calendar days although they confirm that in complex cases it may take longer. The clearance lasts for a period of up to six months and in most cases should cover the duration in which the transaction takes place.

There are however a number of caveats. If legislation changes or the information given to the Revenue does not consist of full disclosure of all relevant issues then the Revenue are likely to use that as an excuse to withdraw clearance retrospectively. Advice should be taken before submitting a claim for clearance from a qualified professional.

Business Property Relief becomes an issue on the transfer of business assets both during lifetime and on death.

For further information please contact Elliot Lewis.