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It is a must if you own a trading business with Business Property relievable assets (which are most companies out there) that the directors ensure that the correct provisions are in place. The wording of any shareholders agreements should be drafted correctly and not as a binding contract for sale of the deceased’s estate immediately prior to death. The parties must have a right and not an obligation to purchase the shares. If there is a contractual obligation it would be void for the purpose of Business Property relief and will be liable to Inheritance Tax. In a Husband and Wife business leaving business property to a spouse generally wastes relief, as a gift to a (UK domiciled) spouse or civil partner is exempt anyway.
Business property that qualifies for 100% relief should, for tax purposes, be given to the lower generations (children and grandchildren) or even better to appropriate trusts. This overcomes the problem that such assets if left to the surviving spouse, become part of the survivors estate and therefore liable to Inheritance Tax; or that on the survivors death the law may have changed for the worse.
Beware of maybe the unintended consequence of bequeathing the BPR relievable assets of the business to for example the daughter and a cash equivalent to the son as the son would be subject to Inheritance tax and the daughter wouldn’t
Here are the main points to consider:
- Check your Share Holders Agreement
- Review your Will to ensure that there is a BPR clause
- Bequeath your business property relievable assets to a business trust to avoid Generational Inheritance Tax
- IHT is called a voluntary tax. People choose to pay it because they haven’t taken advantage of the reliefs available and don’t plan
- Seek Professional help as you may unintentionally land a beneficiary with an Inheritance Tax Bill and therefore a stake in the estate that is not equitable.