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Inheritance Tax Relief on Business Assets

There are ways to claim Inheritance Tax relief on the business assets in an estate. Find out what qualifies as an asset and how to give away business assets or property.

BUSINESS RELIEF: Getting it can reduce the value of a business or its assets. So, it would be most important when working out liabilities for Inheritance Tax.

For Inheritance Tax purposes, your estate would include any ownership of a business, or a share of it.

But, there are ways to get Business Relief of either 50% or 100% on some of the assets in the estate. As a rule, you can pass them on:

  • While the owner of business is still living.
  • As part of their last will and testament.

How to Claim Business Relief

The role would fall to the executor of the will or the administrator of the estate. As such, you may be able to claim Business Relief while valuing the estate of someone who has died.

You would need to fill in two separate forms:

When you calculate relief at 50% you must use the market value of the business or the asset. Some of the items you can claim relief on include buildings, machinery, property, and unlisted shares.

Assets that Qualify for Business Relief

In most cases, you would be able to get 100% Business Relief on:

  • A business or interest in a business.
  • Shares in an unlisted company.

In most cases, you would be able to get 50% Business Relief on:

  • Buildings, land, or machinery owned by the deceased person (if used in a business that they controlled or were a partner in).
  • Buildings, land, or machinery used in the business (held in a trust that it has the right to benefit from).
  • Shares which control more than 50% of the voting rights in a listed company.

Note: Business relief for Inheritance Tax would only apply if the deceased person owned the business or the asset for at least two (2) years before they died.

When You Can’t Claim Business Relief

You would not be able to make a claim for Business Relief if the company:

  • Deals ‘mainly’ with land or buildings, securities, stocks or shares (or making or holding investments).
  • Is being sold. An exception may apply if the sale is to another company that will carry on the business and the estate gets paid mainly in shares of that company.
  • Is being wound up. An exception may apply if it is part of a process to allow the business of the company to continue trading.
  • Is a not-for-profit organisation.

There are other circumstances whereby you cannot claim Business Relief on an asset, such as if:

  • It qualifies for Agricultural Relief for Inheritance Tax as well.
  • There is no future use for the asset as part of the business.
  • Its main use was not for the business during the two years before it got passed on as a gift or as a part of the will.

Note: In some cases, part of a non-qualifying asset used in the business may also qualify for Business Relief.

An Example: You use one room in a building as shop premises. You use the other rooms as your home.
In this example, the shop would qualify for Business Relief Inheritance Tax. But, the other rooms in the building would not.

Business Relief for Agricultural Property

You might get Business Relief on a transfer of agricultural property that does not qualify for agricultural relief. Typical examples would include buildings, farmland, and farm equipment.

Giving Away Business Assets or Property

It is possible to give away business assets or property while you are still alive. Providing they still qualify, the estate can get Business Relief on Inheritance Tax.

Getting Business Relief on a Gift

So, what happens if someone gives away business property or assets? To keep the relief, the recipient must keep them as a going concern until after the death of the donor. As the recipient you would be able to:

  • Get the relief, providing the donor owned the business or the asset for at least two years before the date given.
  • Replace the assets (e.g. machinery) or the property. But, a replacement must be of equal value if used in the business.

When a Gift is No Longer Liable for Inheritance Tax

Not all gifts count towards someone’s estate for Business Relief Inheritance Tax purposes. A gift made more than seven (7) years before the death of the donor would not count. Read further information on Inheritance Tax rates and rules.

Note: An asset or a property may increase in value during the time that you own it. If so, selling, exchanging, or disposing of it, means you may be liable for Capital Gains Tax or Income Tax.

Business Relief for Inheritance Tax in the United Kingdom