Time to tidy up to get full Business Property Relief (BPR)
4th July 2025
Posted in Articles, Business Property Relief by Andrew Marr
The impending restrictions to BPR mean that from 6 April 2026, only 50% of inheritance tax (IHT) relief will be available on qualifying assets valued over £1 million. Many business owners will be scrambling to give away some of their company shares into trust ahead of this date, to take advantage of 100% BPR (and hope to survive seven years to reap the full benefit). Gifts into trust of BPR assets after this date could give rise to an immediate 10% (50% of 20%) IHT charge on any value over £1 million.
As a gift into trust would be immediately chargeable to 20% IHT absent this relief, it is important that the assets qualify for unrestricted BPR. Business owners may be in for a nasty shock if they find that the full value of their shares do not qualify for BPR, despite the company trading. As a reminder, the availability of full BPR on company shares relies on two factors:
1. That the company is wholly or mainly trading. This is a holistic 50% test and, if met, means that BPR is available. If met, a further test needs to be satisfied to get unrestricted relief:
2. That the company does not have any ‘excepted assets’ (assets which are not used in the business or required for future business use). BPR does not apply to excepted assets and their value will be subject to IHT at 20% on a gift into trust. A common excepted asset is surplus cash.
Example
Consider Jennifer, who has grown her company (‘Create Ltd’) to a value of £25 million over many years. She gifts all the shares into trust for her children ahead of the BPR changes. She is confident that BPR will apply to the company as it is a trading company that manufactures and sells clothing garments to various fashion brands.
Due to Jennifer’s other income streams from rental properties and personal investments, she only takes a minimal salary from the company. As such, profits have accumulated and currently Create Ltd has £10 million of cash sitting on its balance sheet. Working capital required by the company has been calculated at £2m, meaning that £8 million of Create Ltd’s cash is surplus and thus forms an excepted asset.
Jennifer is surprised to find out she has £1.535 million of IHT to pay on the gift into trust ((£8 million – £325,000 nil rate band) @ 20%).
Forbes Dawson view
Whilst there is some urgency to complete tax planning ahead of 6 April 2026, business owners should review the BPR position as early as possible in case remedial action is required.
In the above example, ahead of Jennifer gifting the shares, Create Ltd could consider investing the £8 million to create an ancillary investment business to run alongside the trade. Provided these are actively managed investments (i.e. the directors have an active role in the management of the investments), they should not be excepted assets. The 50% trading test would still be met as only 32% of the activities would be investment activities (£8 million out of a total £25 million). Jennifer would then be free to give away shares into trust with 100% BPR applying.
Alternatively, considering Jenniffer is giving away all the capital value, she may wish to extract some of the cash as a dividend (although this would involve income tax at 39.35%).
Many companies will need to ‘tidy up’ their balance sheets before shares can be gifted tax efficiently. This should be a priority for business owners now, as, with only 10 months to go, time is ticking to implement planning ahead of next April. This will also be relevant for normal gifts not involving trusts (potentially exempt transfers or PETs), but the timescale here is not so tight because there isn’t the immediate tax charge on a PET.
