Don't miss out on tax break for business owners

June’s budget announcement might have been all about belt tightening but if you own and manage your own business there was one piece of good news on tax.

Recognising the importance of small, privately owned businesses to the economy the Chancellor of the Exchequer made no change to the regulations on Inheritance Tax business property relief. This is very good news for owners of businesses and also means that there remains scope for benefiting from double recovery of business property relief. It’s a bit of a mouthful, but what it essentially means is that the benefit of the relief on a business property or assets can be doubled by arranging matters so that it can apply to both husband’s and wife’s or cohabitee’s estates. But anyone in this position also needs to know that this doesn’t happen automatically and action does need to be taken.

If business owners don’t do anything and – as the husband for example – die leaving everything to their wife the business property relief will only come into play after she dies. To obtain the double relief it would be better to set up a Discretionary Trust of your business assets in your will. This will allow the assets that would normally be transferred to the surviving spouse or cohabitee to be placed in a trust instead. Because they are placed in a trust they benefit from the business property relief for tax purposes and the trust can preserve the relief and assets for your family. The surviving spouse or cohabitee can however buy those assets from the trust and, as long as they survive for two years from the date of such purchase, will receive the relief again on their death. The trust can preserve the relief it obtained for up to 10 years, prior to the end of which it can be reviewed.

Although this benefit is mainly aimed at people with businesses there are also opportunities for people with other types of assets, such as investment in unlisted shares, including those traded on the Alternative Investment Market (AIM). It is possible to spread the risk of holding such potentially volatile investments across a number of companies by purchasing a collective holding offered by various stockbrokers, for example. It also relates to Agricultural Property Relief for the transfer of agricultural property.

So if you own and run your own business, and whether your spouse or cohabitee is involved in that business or not, it certainly pays to do some planning that will help to preserve your business and other assets, not only for your partner but hopefully for generations to come.

If you would like advice on wills, probate or inheritance tax issues, please contact Francis Durrant

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.

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