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When it comes to estate planning, one of the biggest concerns for business owners in the UK is inheritance tax (IHT). Without proper planning, a substantial portion of your wealth—including your business assets—can be swallowed up by tax liabilities when you pass away.
Fortunately, the UK tax system provides a valuable relief known as Business Property Relief (BPR). When used effectively, BPR can drastically reduce or eliminate the IHT burden on your business assets, ensuring your legacy is preserved and your beneficiaries are not left with an unexpected tax bill.
In this blog, we’ll guide you through everything you need to know about securing Business Property Relief, from eligibility and asset types to strategic planning tips that ensure maximum protection.
What Is Business Property Relief?
Business Property Relief is a relief from inheritance tax, designed to encourage entrepreneurship and investment in trading businesses. It allows certain business assets to be passed on either during your lifetime or upon your death without incurring the standard 40% IHT.
Depending on the type of asset and its use in your business, BPR can reduce the taxable value of that asset by 50% or 100%. This makes it one of the most powerful tax planning tools for business owners looking to protect their estate.
Who Can Benefit from BPR?
BPR is available to:
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Business owners looking to pass on their trading business or shares
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Family members inheriting qualifying business property
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Investors in unlisted or AIM-listed trading companies
If you’re a sole trader, partner, or shareholder in a privately held business, there’s a high chance you can benefit from this relief—provided you meet the conditions.
Qualifying Criteria for BPR
To secure BPR, certain criteria must be met. Here’s a breakdown of what HMRC looks for:
1. Ownership Duration
You must have owned the business asset for at least two years before the date of transfer (either by gift or death). If assets are inherited from a spouse who also met this condition, the time is combined.
2. Nature of the Business
The business must be actively trading, not simply holding investments. This means property investment companies, landholding businesses, or businesses with substantial non-trading activities (such as letting properties or holding securities) may not qualify.
3. Qualifying Assets
Not all business property qualifies equally. Here’s how relief is typically applied:
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100% BPR applies to:
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A sole trader business
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An interest in a business partnership
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Shares in an unlisted trading company (including AIM-listed shares)
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50% BPR applies to:
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Land, buildings, or machinery used in the business but owned personally
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Shares in a company where the deceased had control but the company is listed
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BPR Planning: Why Timing Is Everything
Inheritance tax planning is most effective when done early—and this is especially true for Business Property Relief.
By waiting too long, you may:
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Miss the two-year ownership requirement
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Lose control over succession planning
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Face changes to legislation that reduce the value of available relief
Proactively planning now ensures that your estate strategy is built around the most tax-efficient options available.
Common Mistakes That Jeopardize BPR
Many estates lose out on BPR due to easily avoidable mistakes. Watch out for the following:
1. Owning Investment Businesses
If your business primarily holds rental properties or investment portfolios, it likely won’t qualify for BPR. Even businesses with mixed activities must ensure that trading operations make up the majority of the business.
2. Inadequate Documentation
Failing to clearly distinguish personal assets from business assets (like personally-owned property used by a company) can lead to complications in determining the relief percentage.
3. Late Planning
Waiting until the last moment can result in non-qualifying ownership periods or insufficient time to structure asset transfers properly.
How to Secure Business Property Relief Effectively
To protect your estate and maximise the value passed to your beneficiaries, consider these key steps:
Step 1: Review Your Business Structure
Evaluate whether your company qualifies as a trading business. If your business has evolved into a passive investment company, consult with a tax adviser on how to restructure it for BPR eligibility.
Step 2: Consider Business Succession
Who will take over the business? Make sure the intended successor is aware of the inheritance and is prepared to maintain the business within the required timeframe to avoid post-transfer tax exposure.
Step 3: Use Trusts for Long-Term Control
If you want to retain influence while protecting the business from IHT, consider placing it in a discretionary trust. This offers tax efficiency and ensures future flexibility in how the business is managed.
Step 4: Gift Business Assets Early
Gifting assets more than seven years before death, combined with BPR, can remove both the value and the future growth of those assets from your taxable estate—provided the asset continues to qualify.
Step 5: Document the Use of Assets
Ensure any land, buildings, or equipment used by the business—but owned personally—has clear usage agreements and is directly related to business operations.
BPR and Policy Changes
While BPR has been a cornerstone of IHT reliefs for decades, it’s important to stay updated on any future tax reforms. Policy changes could impact:
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Relief percentages
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Asset eligibility criteria
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Caps or thresholds on the amount of relief available
A proactive estate strategy includes regular reviews and updates in response to legislative shifts.
Protect Your Business Legacy with Confidence
For UK business owners, securing Business Property Relief isn’t just a tax strategy—it’s a safeguard for your family’s future. By meeting the qualifying conditions, structuring your business wisely, and planning early, you can ensure that your life’s work is transferred efficiently and tax-free.
This level of peace of mind comes only from foresight, preparation, and professional advice. Don’t let a lifetime of entrepreneurship fall victim to poor estate planning. Act now, and your business legacy can continue to thrive for generations to come.
