Understanding Business Relief

Business Relief (BR), formerly known as Business Property Relief (BPR) is a tax relief in the UK that can help to reduce the Inheritance Tax (IHT) liability on a business owner’s estate when they die. BR was introduced to encourage entrepreneurship and to ensure that family businesses and other businesses can continue to operate after the death of the owner. 

BR is available at two rates: 100% relief and 50% relief, and the rate of relief that applies depends on the type of property involved.

To qualify for 100% BR, the property must be a business or an interest in a business, and must have been owned by the deceased for at least two years before death. This includes a sole trader business, a partnership business, or shares in an unquoted trading company.  

To qualify for 50% BR, the property must be a business asset, but not a business itself. This includes land, buildings, plant and machinery that were used in the business or held for investment purposes.

There are certain types of businesses that do not qualify for BR at all, such as those that are wholly or mainly engaged in dealing in securities, stocks or shares, or those that are not trading businesses.
 

Here are some examples of how BR can be applied:

Example 1: John owns a small family business which he has run for many years. He has a total estate worth £1,500,000, which includes the business valued at £800,000. John’s business qualifies for 100% BR, which means that the full value of the business is exempt from IHT. John’s estate is therefore valued at £700,000.

Example 2: Mary owns a property development company that is engaged in buying and selling properties. Mary’s business does not qualify for 100% BR, as it is mainly engaged in dealing in securities, stocks or shares. However, her business assets, such as land, buildings, and machinery used in the business, do qualify for 50% BPR. If Mary’s business assets are valued at £500,000, then the 50% BR reduces the taxable value to £250,000.

BR is a valuable relief for business owners, as it can significantly reduce the IHT liability on their estates and help to ensure the continued success of their businesses after they have passed away.  

However, it is important to seek professional advice to ensure that the relief is being claimed correctly, as there are certain types of businesses that do not qualify for BR, and the rules governing the relief can be complex. 

For more information view our Business Relief Guide. 

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