Business property relief is an important and valuable Inheritance tax relief that can reduce the value of relevant business property when it is transferred either in life or death. It was introduced in 1976 in response to the growing number of individuals that were faced with the reality that in the event of their death, the business they had grown over many years, may need to be sold or broken up to pay an inheritance tax liability. How can you preserve it all from disappearing when you retire from your unincorporated business?
Inheritance tax- free assets
While the value of your business is part of your estate, it escapes a charge of inheritance tax if business property relief (BPR) applies. BPR can apply to lifetime gifts of business assets which would otherwise be chargeable to IHT, like a gift of shares in your company via a trust, and business assets in your estate when you die. When you do retire from your business, Business Property Relief can disappear overnight.
As a partner you are jointly and severally liable for the debts of the partnership even if you have a minor role. If the value of your business qualifies for BPR and you leave that partnership and take the capital with you, then BPR will immediately cease. You could ask the other partners if you can keep your capital invested in the business and remain a partner but with a negligible role.
Unless you sell your business, when you retire the business will come to an end. The capital you had tied up in your business will immediately cease to qualify for BPR as soon as you stop trading. Alternatively, you could set up a company with you and one or more other people as shareholders and transfer your business to it. You can receive shares in exchange for the value of the business. The advantage of this route is that there’s no requirement for you to play a part in the running of the company.
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