How to Qualify
The property transferred must normally have been owned throughout the previous two years to qualify. Good record keeping is essential if proof is required.
There is no age limit requirement and anyone can hold a qualifying asset. One qualifying asset/property can replace another qualifying asset/property and the assets together must have been owned by the transferor for at least two out of the five years immediately before the transfer.
The current rates of BPR are as follows:
An interest in a business, such as a sole trader or partnership 100%
(not a company)
Shares in an unquoted company 100%
Securities in an unquoted company giving control 100%
Shares in a quoted company giving control 50%
Shares in an ‘unquoted’ (e.g. AIM or USM) listed company 100%
Settled property comprising a life tenant’s business, or interest in a 100%
Land, buildings, machinery or plant used in a partnership, or controlled 50%
company or settlement
No BPR is available in the following circumstances:
• The business consists wholly or mainly of dealing in stocks and shares (except market makers and discount houses);
• The business is wholly or mainly dealing in land or buildings;
• The business is wholly or mainly holding investments (which includes land which is let);
• Where there is a ‘buy and sell’ agreement on death, or the property is subject to a binding contract for sale (however a ‘double option’ agreement will not exclude BPR);
• a family owned investment company whose principle 'business' is investing in residential or commercial property, stocks, shares, or securities;
• AIM listed companies that are investment companies.
The company invested in must carry on a trade, and investment companies will not qualify.
Investments That Reduce IHT Through BPR
Unquoted company shares are usually high risk and you could lose your capital. If investing, it may be possible to spread risk through a diversification of qualifying shares.
Here are some of the more common investment opportunities:
• Purchase unquoted qualifying shares yourself;
• Buy into an AIM portfolio of qualifying shares;
• Buy your own company and have it managed for you. Current offers include residential builds, forestry management, and companies trading in leases;
• Buy into a syndicate of majority owned private trading businesses with profitable trading histories and cash flows;
• Any business or interest in a business, which does not have to be a company.
As always, obtaining professional investment advice is a must.
Decide on whether a BPR qualifying asset to reduce IHT at 40% is for you. The value of the investment will fall out of your estate after two years, which could save 40%. Those inheriting may continue to have BPR reliefs on the same investment in their estates. The relevant legislation for BPR is to be found in IHTA 1984 ss 103-114.
If an EIS qualifying company investment, you could also obtain initial income tax relief at 30% and CGT deferral reliefs, as well as IHT relief.
By Tony Granger