Inheritance tax is often referred to as a ‘voluntary tax’ and to a certain extent this is true, because in many cases, especially in business planning, inheritance tax can be reduced to nil if a relatively insignificant amount of time is spent planning ahead.

The alternative is in all honesty a voluntary act of exposing valuable estate wealth to 40 per cent inheritance tax which is not usually at the heart of most business-minded decisions.

For business owners, Business Property Relief (BPR) is a valuable succession planning tool that can reduce any ‘voluntary tax’ payable on your assets.

Here are the key things to remember:

Business Property Relief

Business property relief (BPR) can reduce any inheritance tax (IHT) payable on transfers of relevant business property in an individual’s lifetime or when they die. If available, BPR can reduce the taxable value of the transfer by 50 per cent or 100 per cent, depending on the type of property transferred.

Relevant business property

Assets qualifying for 100 per cent BPR can be summarised as:

  • shares in an unlisted company;
  • a sole trader business or share in a partnership; and
  • shares listed on the Alternative Investment Market (AIM).

There is no minimum percentage holding requirement, and entities based overseas can also qualify.

BPR is available at 50 per cent on the following assets:

  • shares in a quoted trading company in which the individual has voting control; and
  • land, buildings or plant and machinery owned by the individual and used in their partnership or a company that they control.

Ownership period

Relevant business property qualifies for BPR when the individual or trust has owned it for at least two years. However, BPR may still be available before this in some other circumstances.

Trading requirement

The business must be ‘wholly or mainly’ trading to qualify. Case law has established that ‘mainly’ trading equates to at least 50 per cent and factors such as turnover, profits and asset base may be considered individually, but the business will be assessed as a whole.

Therefore, if a business (which is considered to be trading) also holds, for example, a property that it lets, it can still qualify for BPR if the letting part (non-trade element) is less than 50 per cent of the whole business.

Property lettings

Businesses with activities consisting wholly or mainly of the letting of land will not be eligible for BPR.

In HMRC v Pawson’s Personal Representatives [2013] UKUT 050 (TCC) (Pawson) it was established that, for the business to qualify for BPR, extra services had to be significant in addition to the letting of property. Cleaning, washing bedding, television and garden maintenance did not constitute significant activities in this case and BPR was denied on the grounds that the business was not wholly or mainly trading.


BPR is a valuable relief that can have a material effect on reducing the inheritance tax burden on individuals and trusts but in many cases the necessary planning to benefit from the relief to its full extent and potential is not in place.

With other careful planning in conjunction with the use of this relief, estate business wealth and the resulting proceeds from any sale of a business can be preserved for the next generation provided the general conditions that apply for BPR have been considered and are in place.

For expert advice on business and estate planning, call 01782 205000 or email enquiry@beswicks.com.