Business Property Relief
How could I protect my ISA from Inheritance Tax?
One way investors could continue receiving the ISA benefits whilst they live and protect the assets from Inheritance Tax (‘IHT’) when they die is to invest in certain AIM shares. Shares in companies that qualify for Business Property Relief (‘BPR’) can normally be passed on free of IHT after two years, provided they’re still held on death and the company still qualifies for the relief.
What is Business Property Relief?
BPR (now known as Business Relief) was first introduced in 1976 to allow family businesses to be passed down through generations free of IHT. Its scope subsequently widened and since 1996 it was made available for a range of assets, including limited companies. This means if you buy and holds shares in such companies you could potentially pass on those shares IHT free provided that:
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the shares are held for at least two years and are still held on death
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the company still qualifies for BPR at the time of the investor’s death
You could buy as few or as many shares as you wish. There is no upper limit or allowance. Provided the above conditions are met, the whole value of the investment – be it £10,000 or £10 million – should attract 100% IHT relief.
Please note, tax benefits depend on circumstances and tax rules can change.
Which AIM shares could qualify for BPR?
HMRC has set rules to determine the type of company that could qualify for BPR. The main requirements are that the company must be trading and must not be listed on a main stock exchange either in the UK or abroad. The most notable exclusions are companies that mainly deal with investments, land or buildings and not-for-profit organisations. However, HMRC does not provide a list of qualifying companies. Instead, it assesses the company retrospectively: when a claim for relief is made (during the probate process) HMRC will confirm if the companies of which the deceased was a shareholder qualifies for BPR and whether the shares can consequently be passed on free of IHT. Importantly, to benefit from 100% relief, the company must qualify for BPR at the time of the investment and remain qualifying until the relief is claimed. (Our associated Investor’s Champion AIMsearch site here, helps identify IHT qualifying AIM companies)
How could I pick AIM shares that qualify for Business Property Relief?
One option is to research the shares yourself to establish their investment merit and BPR-qualifying status. AIM-listed companies, when contacted, should be able to confirm if they think they qualify for BPR at that point. You should check this regularly as a company that qualifies today may not qualify in future.
An increasingly popular alternative is to invest in an AIM ISA portfolio, a ready-made portfolio of BPR-qualifying shares managed by a professional manager.
IHT planning can be complex: if you are not sure please seek advice. Tax rules change and tax benefits depend on circumstances.
How could I benefit from Business Property Relief?
You can pick BPR-qualifying companies to invest in and put together a portfolio yourself.
However, if you don’t have the time and resources to build your own portfolio and ensure the companies are and remain qualifying for BPR, there are two main alternatives:
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IHT portfolios – investing in unquoted or AIM-listed companies
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AIM ISAs – IHT portfolios of AIM-listed companies designed to be held in an ISA
