Article by:
Wentworth Cecil Gurney,
Trainee Solicitor
References to business property in this article are to relevant business property. Business property passes either 100% or 50% free of inheritance tax. However, how do we know whether our business property assets attract 100% or 50% relief? In order to attract either relief, the business property has to be owned throughout the two years before the transfer. It is also important to note the two situations referred to in the final paragraph in which business property will not be relevant business property, and, therefore, will not attract any inheritance tax relief.
No Inheritance Tax
- A sole trader’s business
- A partnership
- Unquoted shares
- Unquoted securities giving control of the company (whether with or without other securities/unquoted shares)
50% Inheritance Tax Reduction
- Shares in a quoted company that give control
- Quoted securities giving control
- Land, buildings, machinery or plant used in the course of business by a company (the company must be controlled by the person making the transfer).
- Land, buildings, machinery or plant used in the course of business by a partnership (the person making the transfer must be a partner).
- Land, buildings, machinery or plant used in a business where the person making the transfer had a life interest in the business (a beneficiary of a trust has a life interest if they have the immediate right to receive the income or the right to enjoyment of the trust property).
The assets do not have to be exclusively used by the business. Plant means items needed for the company or partnership to carry on its business (not stock) and which has a working life of two or more years.
Regardless of the above, businesses mainly involved in investment activity attract no relief. Regardless of the above, assets of a business or company that are not used for the purpose of the business will not attract any inheritance tax savings. Likewise, assets not required for the future use of the business will not attract any inheritance tax savings. This means that playthings within companies, such as yachts and racehorses, will not attract relief nor will excessive cash sums held by a business. In other words, is the cash sum needed for the purpose of the business. If it is not, the amount that is not needed will not attract inheritance tax relief.
The contents of the above article is a broad overview, and should not be relied upon without obtaining specialist advice that is specific to your circumstances. Shortlands Law Firm accept no liability resulting from your reliance on this article.