July 2009

MINIMISING INHERITANCE TAX ON FAMILY FIRMS

Auker Rhodes accountants are reminding business owners of an important tax relief which can reduce their inheritance tax bill when the time comes to pass a business on – but a little careful planning can make it even more effective.

Business Property Relief (BPR) allows the value of assets, including land and buildings, which are used by a business to be disregarded when it comes to calculating the value of an estate for inheritance tax (IHT).

Grant Rudloff from Auker Rhodes said: “The relief is applied at 100 per cent for the business of a sole trader, including land and buildings and other assets they own that are used in the business, or at 50 per cent for land, buildings and assets of either an unquoted company which the individual controls, or a partnership of which they are a member.

“However, when it comes to working out the value of the estate for IHT purposes, any loans secured on an asset are deducted from the value of an estate. For example, a property worth £150,000, but subject to an £80,000 mortgage, would only qualify for BPR on the remaining £70,000 of the building’s value.

One way of avoiding this tax trap, would be to transfer the mortgage from the business property to another property, for example the business owner’s home, which would be subject to IHT anyway. However, that would require careful consideration as failure to meet repayments could put the home at risk of repossession”.

The author is a director in Auker Rhodes Chartered Accountants of Bradford, members of UK200Group with offices throughout the UK and Associates overseas.

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