BPR
Relief from IHT can be claimed in respect of certain types of businesses and business assets if they qualify as relevant business property. The relief has the effect of reducing the value of business property by either 100 per cent or 50 per cent depending on the type of property in question. The general rule is that the property must have been owned by the individual for two years before it qualifies for BPR. The types of property that qualify for BPR are summarised in Table 1:
Table 1
Type of property
| Rate of relief |
A business or interest in a business e.g. a sole-trade or share in a partnership
| 100% |
Unquoted shares in a company, which includes shares traded on the Alternative Investment Market (‘AIM’) and Unlisted Securities Market (‘USM’)
| 100%
|
A controlling holding of quoted securities
| 50% |
Any land, buildings, plant or machinery used wholly or mainly for a business carried on by a company of which the individual had control, or by a partnership of which the individual is a partner
| 50% |
Any land, buildings, plant or machinery held in a trust and used wholly or mainly for the purpose of a business carried on by a beneficiary with an interest-in-possession
| 50% |
Only certain types of businesses qualify for the relief. Business activities do not qualify where they consist wholly or mainly of dealing in securities stocks or shares land or buildings or the making or holding of investments.
In cases where a business has a mix of trading activities and investment activities, a quantitative test is applied to determine whether the business qualifies for BPR. For example, if more than 50 per cent of the company’s business profits are from trading activities, the shares in the company may be regarded as relevant business property. HMRC will often consider a number of factors to determine the percentage value of the company’s trading and investment activities.
APR
APR, much like BPR, can provide generous relief to reduce the value of agricultural property by either 100 per cent or 50 per cent. APR is given on agricultural property in the UK or the EEA, which has been occupied or owned by the individual for the necessary period (see below) for "agricultural purposes".
Agricultural property means:
• Agricultural land or pasture;
• Woodlands occupied with the agricultural land or pasture;
• Buildings used in connection with the intensive rearing of livestock or fish, occupied with the agricultural land or pasture;
• Cottages and the land of an appropriate character to the agricultural land or pasture;
• Farmhouses and the associated land that are of a character appropriate to the agricultural land or pasture.
In order for the asset to qualify for APR, the agricultural property must have been either –
1. Occupied by the individual for the purposes of agriculture for two years; or
2. Owned by the individual for a period of seven years, and throughout that period, been occupied by someone else for the purposes of agriculture.
The rate of APR (100 per cent or 50 per cent) applying to the agricultural property is summarised in Table 2:
Table 2
Type of property
| Rate of relief |
Property where the individual has the right to vacant possession, or can obtain vacant possession within 24 months
| 100% |
Property let on a tenancy that began on or after 1 September 1995
| 100%
|
Property where the individual does not have the right to vacant possession within 24 months
| 50% |
Property let on a tenancy that began before 1 September 1995
| 50% |
Nimesh Shah is a partner at Blick Rothenberg
Key points
An individual can reduce their exposure to IHT, using a variety of reliefs.
An outright gift to an individual during a person’s lifetime will be regarded as a potentially exempt transfer.
Relief from IHT can be claimed in respect of certain types of businesses.
