INHERITANCE TAX PLANNING

Family Enjoying Financial SuccessInvestments In BPR-Qualifying Companies

Business Property Relief (BPR) can be a valuable relief from inheritance tax. It allows certain investments to be left to your beneficiaries free from inheritance tax.

Key Points

  1. Not all companies can qualify for BPR. For example, BPR only applies to companies not listed on the main London Stock Exchange.
    Companies must also be trading rather than investment companies, and they must not deal in stocks and shares, land or buildings.
  2. Choosing the right BPR-qualifying investment could be a complicated business. If you decide that an investment is the right option for you, it’s important to choose a specialist investment manager with experience of investing in this area.
  3. Investments aren’t for everyone, which is why we recommend you seek professional advice before deciding to invest.

BPR was introduced as part of the 1976 Finance Act, and it was created to allow small businesses to be passed down through generations without facing a large inheritance tax bill.

Over time, successive governments recognised the value of a tax relief that encourages people to invest in trading businesses, regardless of whether they run the business themselves. But BPR-qualifying investments are not intended just for tax planning purposes. Investors can consider BPR as an incentive to invest in unlisted trading companies or those listed on the Alternative Investment Market (AIM). The tax incentives can compensate for some of the additional risks associated with investing in such companies.

What Are The Risks?

The value of a BPR-qualifying investment portfolio will depend on the performance of the companies it invests in. With an investment like this, your capital will be at risk and you may get back less than you invest. Your tax treatment depends on your personal circumstances and may change in the future. Also, whether the investment qualifies to BPR will depend on the portfolio companies maintaining their qualifying status. HMRC will consider a claim for BPR-based on the facts when a claim is made, including the relevant legislation in place at the time.

Investments in AIM-listed in unquoted companies are likely to fall or rise in value more than shares listed on the main market of the London stock exchange. There may also be harder to sell. Past performance is not a reliable indicator of future results.

Why Hold Shares In BPR-Qualifying Companies?

  1. Faster inheritance tax exemption: Whereas making a gift or putting assets in trust means they take seven years before they become exempt from inheritance tax, shares in a BPR-qualifying company or investment become exempt from inheritance tax after being held for just two years, provided the shares are still held at the time of death.
  2. Greater access and control: Unlike with a gift, the investor retains control over the investment I can sell the investment and get the proceeds back if they need to. However, shares sold or money taken out of the investment will no longer be exempt from inheritance tax.
  3. Simplicity: Buying shares or an investment in BPR-qualifying companies is relatively simple compared to setting up a trust or using life insurance. There are no complex legal structures, and there may not be a requirement for client underwriting or medical questionnaires.

Investments That Qualify For BPR

Some investment managers can set up portfolios featuring companies that qualify for BPR-for example, AIM-listed or unquoted companies. An investment like this will use the money it receives from investors to buy the shares of companies that it believes will qualify for BPR. This means that as long as the investment has been held for at least two years, and is still held at the time of the investor’s death, it can be passed onto the investors’ new paragraph beneficiaries free of inheritance tax.

Married couples and civil partners also have the benefit of the joint two-year qualifying period. This means that should the investor die within two years of investing, the investment can be transferred to their surviving spouse or civil partner without resetting the two-year clock.

What Are The Risks?

The value of a BPR-qualifying investment portfolio will depend on the performance of the companies it invests in. With an investment like this, your capital will be at risk and you may get back less than you invest. Your tax treatment depends on your personal circumstances and may change in the future. Also, whether the investment qualifies to BPR will depend on the portfolio companies maintaining their qualifying status. HMRC will consider a claim for BPR based on the facts when a claim is made, including the relevant legislation in place at the time.

Investments in AIM-listed in unquoted companies are likely to fall or rise in value more than shares listed on the main market of the London stock exchange. There may also be harder to sell. Past performance is not a reliable indicator of future results.