Haines Watts

How Business Property Relief (BPR) affects inheritance tax

A recent court ruling has changed how Business Property Relief (BPR) may influence the business planning process, particularly around inheritance tax.

Does your business simply hire out land or provide a service? This was the question at the heart of a recent court case which saw representatives of an estate challenge a decision by HMRC.

The case centres around whether the deceased’s DIY livery business was an investment, where the owner simply received payment in return for land use, or a business which offered services to its customers. 

The court ruled that the deceased had been running a legitimate business, a decision which has implications for business owners who are considering Business Property Relief (BPR) and inheritance tax as part of their business planning. 

Businesses which add value

So why is this important? In the past, businesses such as caravan parks and holiday homes have had to prove they are more than investment businesses, but offer additional services.

This case could mean that, where a genuine business’s main or only source of income is generated from land and property rental, it could now qualify for BPR.

Legislation currently means that a business that has a high balance of cash or investments is prevented from claiming capital gains tax relief and BPR relief. However, while HMRC currently has no clear formulae to calculate what constitutes a ‘high level’, legislation refers to ‘20%’, which can be tested against the balance sheet. 

This is yet another grey area affecting business owners. In my opinion, it’s about whether cash or investment balances feel excessive when compared to the overall size of the business. And, if they do, asking if there are commercial reasons why this is the case? 

This might include the need for future reinvestment in new premises or plant and machinery, for instance. This lack of clarity around BPR means it’s important to seek expert and tailored advice.