Business Relief (BR) is a valuable relief from Inheritance Tax (IHT) for business owners. Reducing IHT charges is something most business owners will be considering, as successive governments continue to let fiscal drag eat away at family legacies.
Proactively being aware (of BR) and planning for succession, is important. This, especially when the business owner wishes to pass the business to the next generation or even a full sale.
What are the rules?
- First £2.5m of combined agricultural and business property – 100% relief
- Amounts over £2.5m – 50% relief
- Unquoted and AIM shares – 50% relief (not included in £2.5m allowance)
Think about the £2.5m allowance as sort of a ‘lifetime allowance’ that covers the deceased’s estate on death, failed gifts and lifetime transfers made into trust seven years before death.
Spousal allowances remain and any of the £2.5m unused at death will be transferred to the surviving spouse.
Planning is therefore incredibly important.
We could think about how long this is fixed for, when allowances may change; however, we have seen all too well, of late, that governments are inclined to change their minds to suit their own agenda (with sometimes little to no understanding of the wider consequences).
What about if I have already sold my business?
Replacement relief is available. Maintaining the IHT relief when you have sold a qualifying business asset is maintained when you reinvest the proceeds into a new one.
As long as you do this within 3 years of the original sale and the new investment (as well as the old) meets the standard conditions for BR, you will retain the IHT relief. In doing this you should be meeting the holding condition timeline too, i.e. 2 years of the previous 5.
Succession planning. What do I need to think about?
There is no magic bullet or roadmap to follow. Every individual is unique and a plan for one may not be right for another.
Business owners, their families and other connected parties need to consider not just how to minimise their IHT tax position, but how does this balance off against other factors like control, intergenerational planning/funding and flexibility as legislation and rules inevitably change.
This planning is never just a transaction and continuing advice you can trust is key to achieving that peace of mind.
It all sounds a bit confusing. How do I do something about it?
Speak to a financial adviser. Or ask your accountant/solicitor to put you in touch with one.
Although often they can help you with understanding what needs to be done, the implementation can often require a further professional adviser to see it through.
Independent advisers can work with you (and your accountant/tax adviser) to identify the right opportunities and vehicles to meet your objectives. Independence is the key though. Many advisers out there are restricted and unable to advise on the full breadth of options out there, preferring to work with a much narrower group of investment providers. Here at Rutherford Hughes, independence is the cornerstone to everything we do and the advice we give.
