Business owners saved £1.3bn in inheritance tax relief

Business owners saved their heirs £1.3 billion in Inheritance Tax (IHT) last year through Business Property Relief (BPR), according to TWM Solicitors, a leading private wealth and family law firm. 

BPR is a tax relief designed to prevent family businesses from being sold or broken up to pay IHT upon the founder’s death. However, the firm cautions that heirs should be wary of claiming BPR aggressively, as HM Revenue & Customs (HMRC) is intensifying its scrutiny of such claims. Investigations are particularly focused on claims involving assets that do not constitute genuine business assets, such as substantial cash reserves or non-trading companies.

“Business Property Relief has helped families save a lot of tax and has stopped many family businesses from having to be sold,” said Gillian Dunlea, Senior Associate within TWM's Private Client team. “However, a small number of excessive BPR claims have given HMRC a major incentive to investigate more.” She noted that HMRC suspects many individuals may be overclaiming BPR, either deliberately or inadvertently. “It is crucial that families understand where they are entitled to claim BPR and where they are not,” she emphasized.

There are also reports that the new Government is considering restrictions on BPR, which could significantly affect many families relying on this tax relief. “Many business assets are excluded from BPR. Families should know that the taxman is actively looking for excessive claims,” Dunlea warned.

While certain publicly traded equities qualify for BPR, it is essential for families to understand the limitations. “Some business assets – with shares on the Alternative Investment Market being a prime example – can be reclaimed through BPR,” Dunlea explained. “HMRC grants relief to some shares to encourage business owners to list on the stock market.”

Assets Excluded from Business Property Relief:

• Cash reserves held in business bank accounts
• Most stocks and shares listed on the main market
• Property owned by a business that is let out
• Property owned by an individual but rented by a business

Non-Trading Businesses Excluded from Business Property Relief:

• Furnished holiday lets, such as Airbnb properties
• Buy-to-let portfolios
• Loan financing businesses
• Property developing and renting businesses, including student accommodation providers
• Businesses holding art as an investment without the intent to sell for profit

Dunlea advises, “Families inheriting a private business should seek specialist legal and financial advice before claiming any tax reliefs on their inheritance. This can help avoid a costly and emotionally stressful investigation by the taxman.”