When looking at this relief one of the main questions is “Trading or Investment company?”
With different rates of tax and reliefs applying to different types of business it is important to identify if your company is classed as a trading company or an investment company.
One such relief is Business Property Relief – this is a valuable relief when considering Inheritance Tax Planning. With an increase in estates being liable to inheritance tax, it is important that you can, with future planning, qualify for this relief. Qualifying for Business Property Relief will ensure that the value of your business does not use any of your inheritance tax nil rate band.
A company which deals mainly in investments, such as stocks, shares, securities, land, buildings and the making or holding of investments is classed as an investment company and will not qualify for Business Property Relief. When you are dealing with land and property especially it is important to get the business structure correct to avoid falling foul of the rules.
Relief will also be restricted if your business owns ‘excepted asset’ ie. assets that you do not use predominantly for the purpose of the business.
Beware of binding contracts when it comes to who has a right to buy the business. A binding contract at the point of sale will mean that you do not qualify for business property relief. Options to buy and options to sell should be considered to avoid losing this relief.
In conclusion qualifying for business property relief can save substantial tax. It is, however, easy to fall foul of the rules and criteria and lose this valuable relief. Forward planning is essential.
If you would like more advice about Business Property Relief, contact the Team at The Accountancy Firm.