As a small business owner, tax can impact the value of your business. So, it’s good to know what tax relief you can qualify for to help plan for the future of your business. 

You may be able to benefit from business property relief, a form of tax relief. It can help you reduce what your inheritor owes on your business upon your death. But what is business property relief, and how is it relevant to your business? 

This guide will focus on business property relief, including:

  • What is business property relief?
  • How is business property relief relevant to your small business?
  • How can you claim business property relief?

What is business property relief?

Business property relief is a form of inheritance tax relief. It allows business owners or partial owners to pass on their business and it’s assets to inheritors without being liable to pay the full inheritance tax. 

Small business owners may be eligible for business property relief. As part of an estate planning strategy, this can prevent small businesses from being sold or broken up to pay off inheritance tax. You can pass on your business and it’s assets while you are still alive or upon your death. 

How is business property relief relevant to your small business?

Business property relief is relevant to small company owners because it can be useful to the future of your firm. Inheritance tax could be the downfall of your small business once you pass away. 

You can claim this relief on eligible business fixed assets, such as property, machinery, and unlisted shares. If you own these types of assets for your small business, then your inheritor could benefit from property business relief. 

This relief can help you prepare for the long-term future of your business so that your inheritor can maintain and grow the business after you.

Reduce your inheritance tax

With business property relief, you can reduce the inheritance tax that would be placed on your business assets by either 50% or 100%. 

You can claim 50% relief on business assets. These assets could be land, buildings, or machinery that you own or have within a trust that the inheritor can benefit from. 

Sole traders are able to get 100% relief on the transfer of their whole business. 

Maintain your business assets 

If your small business is eligible for property tax relief, you can ensure that the business remains intact upon your death. Inheritance tax is paid on your estate when you die, and it depends on the overall value of your business and assets. 

As a small business owner, the inheritance tax could be greater than operating costs. This could hurt the value of your business and force the inheritor to sell if they cannot pay the tax.

The tax relief allows your assets to remain in place. Your passing will not financially impact your business or your loved ones who inherit it. This can reassure you that your business will not be a burden to the inheritor. 

Promote estate growth

If you take advantage of business property relief, you can give your business assets and investments an opportunity to grow in the long term. The tax relief will allow these assets to increase in value over time. If inheritance is carried out and items have to be sold or broken up, then value would instead diminish. It also means you don’t need to gift assets while you’re alive to avoid inheritance tax later. 

The risks 

If you choose to take advantage of property business relief, be aware of potential risks. For example, tax rules can change, and this could affect your benefits. Also, you cannot get this relief if you list your business on a main stock exchange. 

Consider claiming business property relief on your assets as soon as you become the owner of them to avoid decreasing value upon inheritance. If you die less than two years after claiming, your inheritor will not benefit from the relief.

How can you claim business property relief?

Now that you understand what business property relief is, it may seem like the right decision for your business. You will need to determine if you are eligible so you can claim this relief.  

Eligibility 

To claim business property relief, you will need to own or partially own a business for at least two years. In addition, your business must qualify for this type of relief. Businesses listed on an Alternative Investment Market, unquoted, or unincorporated typically qualify. 

Companies that don’t typically qualify include those that deal with securities, stock shares, holding investments, or land or buildings. Not-for-profits are also ineligible. Lastly, companies don’t qualify if they are wound up in a sale. 

You can learn more about qualifying criteria on the UK Government website

How to claim it

You can claim your business property relief if you are the will administrator or executor of the estate. Do this when you process the estate. To get started, you will need to fill out Form IHT400 (Inheritance Tax account) and Schedule IHT413 (business or partnerships interests or assets).

You can learn more and claim your property business relief on the UK government website

Save time organising your finances

Once you know what business property relief is, you can decide if claiming it is right for your business. To get the most out of it, you’ll want to manage your finances well to promote your business growth and assets value. 

Thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.