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Latest reports suggest that the city’s economy is gradually rebounding from the effects of the recent downturn in the oil and gas industry. This is evidenced in a study by The UK Power House which places Aberdeen as the best performing city economy in Scotland, with the fifth best rate of growth in the UK. At the beginning of the year Aberdeen was also voted as the best location to launch a start-up business in the whole of UK.

As the city’s business owners continue to work hard to build high value businesses and adapt and diversify to place them in a stronger position post downturn, it makes sense to plan for business succession for future generations.

Owners often believe their business will be exempt from Inheritance tax (‘IHT’), due to Business Property Relief (‘BPR’). This is not always the case and without tailored advice, business owners could be left with large and unexpected IHT liabilities.

What is BPR?

BPR can reduce IHT payable on transfers of business property during lifetime or on death. It can reduce the taxable value of the transfer by 50% or 100%.

100% BPR -is available on:

  • A sole trader business or an interest in a partnership.
  • Shares in an unquoted company.

50% BPR- is available on:

  • Shares controlling more than 50% of the voting rights in a quoted company.
  • Land, buildings or plant and machinery held outwith the business but used wholly or mainly in the business.

Conditions to be met:

  • The business property must be used in the business for at least 2 years prior to transfer.
  • The business must be ‘wholly or mainly’ trading, with trading forming at least 50% of the business activities.

Points to consider

  • If the business holds excess cash or assets not used for business purposes, this may affect the availability of BPR. For example, shareholders may accumulate cash within the company with the aim of avoiding higher income tax rates on extracting profits, unknowingly jeopardising BPR.
  • If a business has been incorporated and business premises are held outwith the company, this could reduce the BPR entitlement from 100% to 50%.
  • Where multiple companies are owned, some trading and some holding investment property, the property arm may disqualify the whole company group from qualifying from BPR. Re-organisation of the company structure may be needed to secure relief.

The rules surrounding BPR are complex and specialist advice should always be sought.

Emma Boyle, Tax Manager

Chambers UK 2018

Contact Info

ABERDEEN OFFICE
28 Albyn Place, Aberdeen AB10 1YL
Tel: +44 1224 845845

 

INVERNESS OFFICE
Camas House, Fairways Business Park,
Inverness IV2 6AA
Tel: + 44 1463 713225

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