Inheritance Tax is payable on the estate of someone who has died. When assessing the value of an estate, all assets including property, shares, money and other possessions will be considered.
The prevailing Inheritance Tax rate is 40%, and this is charged on the part of the estate valued over and above the nil rate band, which is currently fixed at £325,000.
There are two key Inheritance Tax reliefs, which could be beneficial for taxpayers when reviewing the value of an estate for Inheritance Tax purposes.
- Business Property Relief (BPR), now known as ‘Business Relief’
- Agricultural Property Relief (APR), now known as ‘Agricultural Relief’.
What is Business Relief?
Business Relief provides automatic Inheritance Tax relief by way of a 100% or 50% reduction in the value of a chargeable transfer of a 'relevant business property' that has been held for a minimum of 2 years.
Business Relief is available for businesses, irrespective of how they are carried on. Therefore, the relief can apply to:
- Unquoted trading companies,
- Sole traders, and
- Partnership, in the exercise of a profession or vocation.
Not all businesses qualify for Business Relief, and some will be specifically excluded from the relief. This includes businesses consisting wholly or mainly of dealing in securities, stocks or shares, land, or buildings, and making or holding investments.
Relief may be granted for shareholdings in a holding company, provided that the subsidiary companies are qualifying businesses.
It may also be noted that a business does not have to be carried on in the UK or be resident in the UK to qualify for Business Relief.
Relief is available by way of a percentage reduction in the value of the chargeable transfer as follows:
| 100% reduction | 50% reduction |
| For the transfer of property consisting of a qualifying business or interest in such a business | For the transfer of shares or securities in qualifying quoted companies, controlled by the transferor. |
| For shareholdings in a qualifying unquoted company | For the transfers of land, buildings and plant and machinery used in the business of a qualifying company controlled by the transferor. |
| For securities held in qualifying unquoted companies controlled by the transferor. | For the transfers of land, buildings and plant and machinery used in a partnership of which the transferor is a partner. |
| For the transfers of land, buildings and plant and machinery used in a business in which the transferor holds a life interest. |
What is Agricultural Relief?
Agricultural Relief is an automatic Inheritance Tax relief by way of a 100% (50% in exceptional circumstances) reduction in the value of a chargeable transfer of 'agricultural property' that has been held for a minimum period.
Significantly, the relief applies only to the agricultural value of the property. Broadly, this will be the value the property would have if it could only be used as agricultural property.
Agricultural Relief does not extend to any other open market valuation such as development value. Depending on the circumstances, it can be worth exploring if any excess value not covered by Agricultural Relief, may instead qualify for Business Relief.
