Don’t lose your Business Property Relief

Chris Annis, director LB Group

Chris Annis, director LB Group - Credit: Archant

Tax Matters

Business Property Relief (BPR) is a valuable relief which can protect your business assets from Inheritance Tax (IHT). Care is needed however, as this protection can be lost where a badly drafted shareholders’ or partners’ agreement is in place.

If you want to keep your family business intact, it’s good advice to draw up an agreement between the shareholders (or in the case of a partnership, the business partners). Amongst other things this should include a clause which deals with what happens to the deceased’s share of the business on their death.

Company or partnership shares in most trading businesses qualify for BPR as long as the seller has owned the shares, or been a partner for two years or more. The effect of BPR is to exempt business assets, e.g. shares in a company or partnership, from IHT. But there’s an exception: Where an individual commits to selling their share of a partnership or company, they’ll lose BPR on those assets.

HMRC will consider it a sale agreement where:

1 the company or partnership shares are transferred on death to the deceased’s personal representatives; and

2 the personal representatives are required to sell the assets to the surviving shareholders or partners; and

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3 they are obliged to buy them.

What to do?

Review existing agreements and if there is a problem then it’s relatively easy to solve. There are broadly two ways you can achieve the right result;

Include an option (not an obligation) for the surviving shareholders to buy the deceased’s share of the business if they die.

Alternatively, if you don’t want to create an option, a clause can be added in the agreement and a matching one in the wills of each shareholder/partner which says that all business assets pass to the surviving owners direct. Of course this does mean that the beneficiaries of the estate of the deceased don’t receive any value for the business assets.

You should always keep a signed copy of the shareholders’/partners’ agreement with your will to assist your personal representatives when dealing with the estate.

Please note the above does not constitute financial advice and LB Group cannot be held responsible for any errors or omissions. If you need help or advice please contact LB Group on 01473 359720 or email