Business & Farm Relief
Business Relief reduces the value of a business (or the value of the business’s assets) when working out how much Inheritance Tax is due. Any form of ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes. Business Relief is available at either 50% or 100% on some of an estate’s business assets. Such business assets can be passed on either while the owner is still alive or after death by means of a will.
The executor of the will (or administrator of the estate) can claim Business Relief when valuing the estate for IHT purposes by means of forms IHT400 (Inheritance Tax account) and IHT413 (Business or partnership interests and assets). The true market value of the business or asset must be used when calculating the relief and the claim can be made for property and buildings, unlisted shares and/or machinery.
100% Business Relief is available on a business or interest in a business and shares in an unlisted company. 50% Business Relief is available on shares controlling more than 50% of the voting rights in a listed company, land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled, land, buildings or machinery used in the business and held in a trust that it has the right to benefit from.
You can only get relief if the deceased owned the business or asset for at least 2 years before they died.
There are a number of business types, however, that don’t qualify for relief and this is an area where great care has to be taken.
Sometimes Business Relief can be obtained on a transfer of agricultural property (e.g. farmland, buildings or farm equipment) which isn’t eligible for agricultural relief.
Agricultural or Farm Relief applies mainly to property and is often referred to therefore as Agricultural Property Relief (APR). The main things that can be included in a claim for APR are land or pasture that is used to grow crops or to rear animals intensively, but other things can be included, for example, land not currently being farmed under a crop rotation scheme, stud farms for breeding and rearing horses and grazing, the value of milk quota associated with the land, some agricultural shares and securities, and farm buildings, farm cottages and farmhouses.
The property must have been owned and occupied for agricultural purposes immediately before its transfer for 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner, and for 7 years if occupied by someone else.
If a claim is made for APT then no claim for the same assets can be made for Business Relief.
Clients need to be aware that although both these reliefs are very useful in planning, even for those who are trying to reduce an IHT liability but have never owned such assets previously (as the qualifying period of 2 years is much less than the usual 7 year PET period), great care needs to be taken to ensure that the assets being put forward will actually qualify when the time comes.
For anyone wanting to reduce a potential IHT liability we cannot overemphasise that you should start planning and speaking to us as early on as possible – leaving it too late might very well mean that you run out of time. Please remember that there are very few legal means of reducing an estate for IHT purposes in the two years immediately prior to death.