Business Property Relief (BPR) is a relief that reduces the taxable value of relevant business property for Inheritance Tax (IHT) purposes on transfers made both during an individual’s lifetime and on death.

Relevant business property includes assets such as a business, an interest in a business, shares in an unquoted trading company and land, buildings, machinery or plant owned by an individual personally but used wholly or mainly for business purposes by a partnership in which they are a partner or a company which they control.

In general, in order to qualify for BPR, the business property concerned must have been owned by the individual for two continuous years before death or transfer and meet certain conditions. However, if there is a rights issue in a company under which further shares are offered to all shareholders and the deceased shareholder had taken up his or her issue then, provided the allocation is linked and proportionate to shares already held by the deceased shareholder, the new shares fall within the reorganisation of share capital rules and qualify immediately for full relief from BPR.

Relief is given at a rate of either 100% or 50% depending on the property concerned. A transfer of a business, an interest in a business or unquoted shares in a trading company would qualify for 100% BPR whilst the transfer of land, buildings, machinery or plant owned by an individual personally but used wholly or mainly for business purposes by a partnership in which they are a partner or a company they control will only qualify for 50% relief.

BPR will not be granted where a business consists, wholly or mainly, of dealing in loan notes or shares, dealing in land or buildings or making or holding investments. BPR will also be denied where the business property concerned is subject to a binding contract for sale. This can include binding agreements by co owners to buy out a deceased’s share of a business. These arrangements should be avoided and cross option agreements explored instead as these preserve the BPR available.

BPR can be claimed in a lifetime on the making of a gift of shares in a Trading Company.  Gifts crystallise the BPR available but what you have to be careful of here is that if the shares are sold by the person you give them to and you die within 7 years of the gift then the BPR is lost. This is a claw-back provision under Section 113A of the Act.