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What is Business Property Relief?

Why Business Property Relief exists

Business Property Relief (BPR) has been an established part of inheritance tax legislation since 1976. And as an investment incentive, it’s relatively straightforward. Once BPR-qualifying shares have been owned for at least two years, they can be passed on free from inheritance tax on the death of the shareholder.

BPR is a well-established relief dating back 40 years, however, you should keep in mind that the value of an investment may go down as well as up and you may not get back what you originally put in. Tax rules may change in the future, and the value of tax reliefs depends on your own personal circumstances. Be sure to read the ‘What are the risks?’ section below, and we recommend that you talk to a financial adviser before making any investment decision.

The types of business that typically qualify for BPR

Not every interest in a business will qualify for BPR. Broadly speaking, investments in the following kinds of businesses that carry on a trade rather that investment activities could qualify for BPR, including:

  • Shares in qualifying companies that are not listed on any stock exchange.
  • Shares in qualifying companies listed on the Alternative Investment Market (AIM).
  • An interest in a qualifying business, such as a partnership.

Since 2013 investors can hold AIM-listed shares within Individual Savings Accounts (ISAs). This means an ISA that invests specifically in AIM-listed companies expected to qualify for BPR can offer inheritance tax exemption as well as the traditional ISA benefits of tax-free income and capital growth.

BPR as part of an estate planning strategy

Investing in the shares of BPR-qualifying companies can be beneficial if you fit into one of these categories:

  • You don’t want to give away large sums of money: You can give your money away during your lifetime to reduce the value of your estate, but it’s not an option many people feel comfortable with. However, with a BPR-qualifying investment, the shares are held in your name, which means you keep hold of your wealth.
  • You want to give the inheritance you plan to leave behind the chance to grow: Investing in BPR-qualifying companies means your investment has the potential to increase in value. But as with any investment, there are no guarantees, and you could lose some or all of your money.
  • You want the money you invest to become inheritance tax exempt quickly: Some people are put off by traditional estate planning strategies, such as making gifts or putting money in trust, as these typically take seven years before becoming fully exempt from inheritance tax. With a BPR-qualifying investment, the shares become 100% inheritance tax exempt after a holding period of just two years, as long as the shares are still held at the time of death.

 

What are the risks?

  • To qualify for BPR, a company must not be listed on a main stock exchange. Such companies could fall in value, and investors may get back less than they invest.
  • Tax rules could change in the future. The value of tax reliefs will depend on an investor’s personal circumstances. There cannot be any guarantee that companies that qualify today will remain BPR qualifying in the future.
  • Investments in unquoted companies or those quoted on AIM can fall or rise more sharply than shares in larger companies listed on the main market of the London Stock Exchange, and may be harder to sell.