What is Business Relief?

Business Relief is a tax relief provided by the UK government that reduces the value of a business or its assets when calculating Inheritance Tax (IHT). Introduced to encourage investment in businesses and to ensure that family businesses can be passed down without a substantial tax burden, business relief can reduce the taxable value of certain business assets by up to 100%.

Qualifying for Business Relief

Not all business assets are eligible for Business Relief. The relief applies to specific types of businesses and assets, with the extent of the relief depending on the nature of the business and the length of ownership. 

Here are the primary criteria:

1. Types of Qualifying Assets:
   1. Ownership of a Business: If you own a business or an interest in a business, it may qualify for 100% relief
   2. Shares in an Unlisted Company: Shares in companies that are not listed on the stock exchange can qualify for 100% relief.
   3. Certain Types of Business Property: Land, buildings, or machinery owned by the business can qualify for 50% relief if they are used wholly or mainly for business purposes.
2. Length of Ownership: he business or asset must have been owned for at least two years before it can qualify for BR.
3. Nature of the Business: The business must be trading, meaning it should be involved in a profit-making activity. Investment businesses, or those mainly holding or making investments, typically do not qualify for BR.

How Business Relief Works

When calculating Inheritance Tax, Business Relief reduces the value of qualifying business assets by either 50% or 100%, depending on the type of asset. For instance, if you own shares in an unlisted company valued at £500,000, and these shares qualify for 100% relief, their value for IHT purposes is effectively reduced to zero.

Advantages of Business Relief

1. Reducing Inheritance Tax Liability: By reducing the taxable value of your business assets, BR can significantly lower the IHT bill, making it easier for your heirs to inherit the business without needing to sell off assets to pay the tax.
2. Encouraging Business Continuity: BR supports the continued operation of family-run businesses by mitigating the financial burden imposed by IHT. This ensures that businesses can be passed down through generations, fostering long-term stability and growth. 
3. Facilitating Business Investment: The potential for significant tax relief encourages investment in unlisted companies and other qualifying business assets, contributing to economic growth and innovation.

Planning Considerations

To maximize the benefits of Business Relief, it's crucial to engage in thorough and proactive estate planning. Here are some steps to consider:

• Regular Review: Ensure your business structure and asset ownership meet the qualifying criteria for BR. Regularly review your estate plan to adapt to any changes in your business or tax laws.
• Professional Advice: Consult with financial advisers, tax experts, and legal professionals who specialize in estate planning and business taxation. They can provide tailored advice and strategies to optimise your tax relief.
• Documentation: Maintain detailed records of your business activities and ownership to support your BR claim.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.