What is Business Property Relief for inheritance tax?

What types of property qualify for Business Property Relief and what rates of relief apply? Eamonn Daly of Wright Hassall explains how Business Property Relief can reduce your inheritance tax.

Business Property Relief UK

What is Business Property Relief?

Business Property Relief (BPR) reduces the value of ‘relevant business property’ which is subject to inheritance tax (IHT) on a transfer arising on death or by a lifetime gift. The reduction with BPR is 50 per cent or 100 per cent in value depending on the sort of property. This means IHT due could be halved or removed completely.

What businesses qualify for Business Property Relief?

To qualify for BPR, the business to which the property relates must be a trading business. You cannot claim BPR if the company wholly or mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. ‘Mainly’ means more than 50 per cent of the business, considering the overall context of it, with reference to capital employed, employee time spent, turnover and profit.

A non-trading holding company of a group would usually be considered an investment company, so BPR would not be available. However, there is specific provision in the legislation which states that shares or securities of a company wholly or mainly engaged in being a holding company of subsidiaries that are wholly or mainly trading will qualify for the relief.

It should be noted that the letting of property/land without provision of significant additional services is considered to be an investment activity and HMRC have argued that many land-based businesses are non-trading.

What types of property qualify for Business Property Relief and what rates of relief apply?

The different types of relevant business property, and the percentage reductions in the value that is subject to IHT, are as follows:

Relevant business property



A business carried out by a sole trader or an interest in a business such as a partnership share


Company shares, including those listed on the Alternative Investment Market, not listed on a recognised stock exchange


Unquoted securities of a company where the donor has control of the company


Land, buildings, machinery or plant used wholly or mainly for business purposes by a company the donor controls or a partnership in which they are a partner            


Land, buildings, machinery or plant held in a trust used wholly or mainly for the purposes of a business carried on by an individual who has an interest in possession in the trust


Quoted company shares or securities where the donor has a controlling interest


The value of any assets held in the business which have not been used wholly or mainly for the purposes of the business for two years before transfer and are not required for future use of the business are excluded in calculating the relief due.

Where binding contracts for sale of the property are in place before the transfer, BPR is not available other than in limited circumstances.

Where a liability has been incurred (for example a loan is taken) to acquire, maintain or enhance relevant business property, it reduces the value of the property that is relieved. This is so even if the liability is secured on other property.

How long must the property be owned for Business Property Relief?

To qualify as relevant business property, the property must have either:

  • been owned by the donor throughout the period of two years before transfer
  • replaced other relevant business property with the combined period of ownership being two out of the five years prior to transfer

If there are two successive transfers, one of which is on death, the later transfer will qualify for BPR even where the property was not held for 2 years if the earlier transfer was eligible.

Property inherited on death of a spouse/civil partner is treated as having been acquired when the deceased spouse/civil partner acquired it.

Can lifetime gifts qualify Business Property Relief?

Where the donor of a gift of relevant business property dies within seven years of the gift, the availability of BPR is re-assessed. The relief will be given if the property was owned by the recipient throughout the period between the gift and the donor’s death (or the recipient’s death if earlier) and still qualifies as relevant business property.

Where a business has incorporated or a share-for-share takeover has happened after the initial gift, the new shares are still treated as being the original property for this purpose.

BPR can still apply if the original property gifted has been disposed of as long as all the proceeds were reinvested in the replacement relevant business property which is held at death within three years.

How can Business Property Relief be maximised?

There are many ways in which the use of BPR can be maximised:

1. The transfer of assets which are used by the business and owned by a controlling shareholder or partner to the business could be considered in order to increase the BPR rate from 50% to 100%.

2. A lifetime agreement that surviving co-owners of the business must buy a deceased co-owner’s interest from their estate is likely to constitute a binding contract for sale, so BPR would not be available. 

However, they could instead enter cross purchase and sale options, exercisable on death by either party, so that the relief will be available on the deceased’s interest. An accruer clause in a partnership agreement under which the deceased’s interest passes to the surviving partners who must pay the estate a price would also not cause BPR to be lost.

3. Directors’ loans accounts can be useful to allow funds to be withdrawn from a company without income tax and national insurance consequences.

However, BPR would not be available on the value of the loan, unless it were converted to share capital before transfer. If the conversion were completed by way of a rights issue on the existing shareholding, the two-year minimum ownership period would start from the acquisition of the original holding rather than of the new shares.

4. BPR may be lost if the business operations shift from wholly or mainly trading, for example more towards investment or property letting. In order to be able to utilise the relief available on any trading element, the investments or properties would need to be separated out from it into another business.

5. Conversely, where there are entirely separate trading and investment businesses, BPR would only be available for the trading business even if it constituted more than 50 per cent of the combined value.

By incorporating a holding company to own the trading business as a subsidiary and the investments directly, the whole group might attract 100 per cent relief. However, this structure may have implications for the availability of Business Asset Disposal Relief (BADR) (formerly entrepreneurs’ relief) on a future sale; BADR would not be available if the non-trading element exceeded 20 per cent of the whole business.

6. Where a business is sold and cash or other non-BPR qualifying assets are received, these proceeds would not benefit from BPR on a gift by, or on the death of, the seller.

Planning can, however, be undertaken to ‘crystallise’ the relief before sale or to make use of the replacement property provisions so that the relief is maintained on a later transfer.

7. The business owner can ‘crystallise’ any BPR available on their death through the incorporation in their will of a trust in which their spouse/civil partner could be a trustee and beneficiary.

If the business is likely to continue after the death of the owner, the use of a trust with two separate sub-funds in the will should be considered. The trustees would have the power to exchange non-relieved assets in one fund which is treated as owned for IHT purposes by the surviving spouse/civil partner for the business property in another fund which is outside of the survivor’s estate.

This would enable there to be no IHT payable on the first death and the business property could requalify for BPR in the survivor’s estate once it is held for two years. In this way the benefit of the relief would be doubled.

About the author

Eamonn Daly is a partner in the private client team at Wright Hassall, a Chartered Tax Adviser and a member of the Society of Trust and Estate Practitioners (STEP).

See also

What is Agricultural Property Relief (APR) for inheritance tax?

How do nil rate bands reduce inheritance tax?

Should you have different will trusts for different family members?

Find out more

Business Relief for Inheritance Tax (GOV.UK)

Business Asset Disposal Relief (GOV.UK)

Image: Getty Images

Publication date: 16 September 2020

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.