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How Business Relief can help you reduce your Inheritance Tax bill

As Inheritance Tax (IHT) receipts increase, you may be looking for ways to mitigate a large bill for your family. Learn how Business Relief could help you.

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Building a successful business takes a lot of hard work and dedication. So, it’s only natural that you want to pass on as much of your wealth as possible to your family so they can benefit from all the work that you’ve put in over the years.

Unfortunately, Inheritance Tax (IHT) may make it more difficult to pass your wealth down to loved ones in the future, especially as receipts are rising.

Figures reported by FTAdviser [1] show that the government generated £7.1 billion from IHT between April 2022 and March 2023 – an increase of £1 billion on the same period the previous year.

This is likely because IHT “nil-rate bands” – the amount that you can pass on without triggering an IHT charge – remain frozen. Additionally, rising house prices, potential investment returns, and the value of your business could push the value of your estate up, meaning that your family may be more likely to pay IHT on your wealth in the future.

Fortunately, if you are a business owner, you may be able to benefit from Business Relief. When used in the right way, this may help you pass on your business assets without them counting towards the value of your estate for IHT purposes, so your family can keep as much of your wealth as possible.

Read on to learn how Business Relief works and how you can use it to your advantage.

Business relief may be available at 50% or 100% on qualifying assets

If you own a business, the chances are that you will be able to benefit from Business Relief on some of your assets, meaning that they fall outside of your estate for IHT purposes.

Your company, or any shares that you hold in a business, may qualify provided you have owned the asset for at least two years.

Business Relief applies whether you make a lifetime gift or pass assets on to your beneficiaries after you die. So, understanding how this tax break works may help with your IHT planning now and in the future.

Only certain assets qualify for Business Relief.

You may receive 100% relief on:

  • A business or interest in a business
  • Shares in an unlisted company.

Meanwhile, you may receive 50% relief on:

  • Land, property and equipment owned by a business that you have a share in
  • Land, property and equipment held in a trust that the business benefits from
  • Shares controlling at least 50% of the voting rights in a listed company.

There are, however, some situations when Business Relief doesn’t apply, and assets may still form part of your estate for IHT purposes. Examples include:

  • Non-profit organisations
  • Companies that primarily deal with investments, stocks and shares, land and buildings or securities
  • Businesses that are in the process of being wound up or sold – unless this is part of a strategy to keep the business running.

The specific rules around which assets qualify for Business Relief can be difficult to understand. As such, it may be useful to seek advice to ensure that you are making full use of Business Relief when passing on wealth.

Why Business Relief could be an effective way to mitigate an IHT bill for your loved ones

While there are other ways to mitigate IHT, you may want to consider taking advantage of Business Relief wherever possible because it has several key benefits.

You could gift certain assets to your beneficiaries without making use of Business Relief and, provided the gift meets certain criteria, it may fall outside of your estate for IHT purposes.

That said, you must pass ownership of this asset to the recipient and you can no longer benefit from it – earning an income from a business, for example – if you want it to fall outside of your estate.

Fortunately, if you make use of Business Relief, you can retain ownership and benefit from qualifying assets, and they may still fall outside of your taxable estate.

Holding onto assets in this way also means that the value of the inheritance you leave has a chance to grow before you pass it on. Your business may expand or any shares you hold could increase in value, for example.

Additionally, you do not have to use up as much of your nil-rate bands on assets that qualify for Business Relief. This means that your family can inherit a larger portion of your non-qualifying assets before they have to pay IHT.

So, as you can see, Business Relief may be an effective way to pass on more of your wealth to your loved ones. However, it is important that you understand which assets qualify and your beneficiaries are aware that they need to apply for Business Relief.

Get in touch

If you are concerned about the IHT bill that your family may have to pay on your estate, get in touch today to discuss how you may benefit from Business Relief.

Please visit our contact page or speak to your adviser.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

[1] 21.06.2023 IHT receipts grow by £1bn year-on-year FTAdviser

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

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