Getting your house in order: tax reliefs

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Jessica Morton of Tilly Bailey & Irvine’s private client team looks at how business owners can benefit from tax reliefs on their business by getting their succession planning in order.

In the running of your business you will undoubtedly want to ensure it is put in the best position it can be for the future – so why would you not also do that in your personal life for your family?

By properly structuring your will, you and your family can benefit from significant savings by taking full advantage of Business Property Relief (BPR) and, at the same time, negate a significant amount of inheritance tax (IHT) becoming due.

BPR is a relief available to business owners where the business assets pass at a lower rate of tax, or free of IHT altogether, depending upon the type of property. On assets held for at least two years, BPR is available at either 50% or 100%. The maximum is available to those who own a business, are in a business partnership, or hold shares in a limited company.

If you leave your business to your spouse, as is quite commonly the case, you have the ability to structure your Estate to be much more tax efficient than it would be otherwise.

This is achieved by preparing a will that provides for all of the business assets that attract BPR to be left to a Trust upon your death. The remainder of the Estate is then left to your surviving spouse. The Trust will qualify for BPR and will not attract IHT. Anything left to the surviving spouse will be exempt of IHT because of the 100% spousal exemption.

The trustees would then sell the business assets from the Trust to your spouse. This means that the assets are effectively swapped, leaving your spouse with the business assets and the Trust with chargeable ones. Your spouse will then, upon their death, have assets that qualify for BPR and not be chargeable to IHT in their Estate. The fund in the Trust will be taxed as opposed to the business assets. The rate of tax would be at a more favourable level than the 40% IHT rate they would have otherwise likely been subject to because it would be taxed as a Discretionary Trust.

This structure can also allow for your surviving spouse to receive payments from the Trust for the remainder of their life if that is what is desired. It is therefore an extremely useful arrangement to put in place but requires careful planning and professional expertise in order to ensure it is done correctly.

If you would like to make an appointment to speak with Jessica about the points discussed above, or any other matters of a similar nature, please call 01740 646000 or visit


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