Business Property Relief ("BPR") is a relief from Inheritance Tax provided under the Inheritance Tax Act 1984 and can be a very valuable relief for farmers and agricultural estates.
Put simply, where the conditions for BPR are met, the relief reduces the value of gifts made either in one's lifetime or on death. The reduction in value is applied at two rates, either 50% or 100%. The rate of relief applicable will depend upon the type of property and how it is owned.
Agricultural Property Relief ("APR") is the other form of relief that is often applicable to agricultural assets. Where possible, APR is claimed prior to any claim for BPR. For those assets or elements of assets that do not qualify for APR, BPR should then be sought as it applies to the full value of the asset as opposed to being limited to the 'agricultural value' as is the case with APR.
The conditions for BPR are as follows:
The property must be of a type that can qualify (known as relevant business property). The categories of property and the rate of relief applicable to each are as follows:
| Type of Property | Rate of BPR |
| A business carried on by a sole trader | 100% |
| An interest in a business - such as a share in a partnership | 100% |
| Unquoted company shares and securities | 100% |
| Quoted company shares or securities | 50% |
| Land, buildings, machinery or plant owned by the transferor/deceased and used wholly or mainly for the purpose of a business carried on by a partnership in which he was a partner or by a company that he controlled | 50% |
The property must have been owned by the transferor/deceased for more than two years. However, there are relaxations to these rules, which include:
The underlying business must be carried on for gain and be a trading business (therefore excludes 'hobby farmers' being able to claim BPR). It must not be wholly or mainly an investment or a dealing business and so cannot be a business dealing in land or buildings or making or holding investments (this is discussed further below in respect of the Balfour Principle/Matrix).
A lot of farming businesses will satisfy this requirement without an issue; however, as can often be the case, agricultural estates may include furnished holiday lets or residential let properties. Generally, this would be viewed as investment property and recent case law has confirmed that BPR would not be available.
Also, care must also be taken if one lets a farm on, say, a farm business tenancy and so does not undertake any farming activities themselves. In such a situation, H M Revenue & Customs may take the view that one is not undertaking a trading operation and so although APR may still apply, BPR could be denied.
Assets within a qualifying business may be deemed to be an excepted property if they are not used in the business and not required for future business use. For example, a large amount of cash held in a business account, is not likely to benefit from BPR.
BPR will usually be available for farming business property such as the business banking accounts, farm machinery/plant, farmland, farm buildings and stock as these are clearly used in the trade of farming.
As stated above, BPR is applied at different rates depending upon the type of property and how it is owned. Generally, property that satisfies the above requirements and is held within the farming partnership (on the balance sheet) will benefit from the relief at 100%, whereas if such property is owned by a partner and used by the business but held outside of the partnership, the rate of relief will be only 50%. A typical example of this is farmland and farm buildings that may be owned by one of the partners (often the older generation within a farming family) but used by the business. Although such property will be likely to benefit from BPR, if it is not held on the balance sheet of the business, any claim for BPR will be limited to 50%. This may not be an issue if APR is available for the full value of the land, but should any development or hope value be attached to the property, which is not covered by APR as it exceeds the agricultural value, BPR should be claimed. This has become more of an issue in respect of farm buildings due to recent changes in planning rules.
As mentioned above, in order for property to qualify for BPR the underlying business must not be wholly or mainly an investment or dealing business. A now famous case in 2010 considered this point and whether BPR should apply to a business, which consisted of a mix of both trading and investment activities. In such situations, various factors are considered, not only at the date of the transfer but over a reasonable period of time prior to the transfer, including the turnover, profit, time spent on elements within the business and the capital value of the elements. This is now known as the Balfour Principle. Successfully utilising the Balfour Principle results in the entire business benefitting from BPR, including not only the property involved in the trading activities but also the property involved in the investment activities (for example, letting of properties) that alone would not have benefited from BPR.
Although woodlands that are ancillary to farmland and the main activity of farming are likely to qualify for APR, it may be possible to claim BPR for woodlands that do not fall into that description. In order to qualify the woodland has to be managed as a business or part of a business unit on a commercial basis.
This is only a brief summary of BPR and any claim or prospective claim for the relief must be carefully considered to assess its strength.
When considering estate planning either with your solicitor or accountant, it would be advisable to consider the prospect of successfully claiming BPR alongside APR and, if possible, at a rate of 100% as opposed to 50%, which may involve consideration of the Balfour Principle/Matrix for estates where there is a mix of trading and investment activities. It would undoubtedly be necessary to look at the partnership agreement, recent business accounts and your Wills to ensure that these are consistent and would support claims for both APR and BPR. If no formal partnership agreement is in place, it would undoubtedly be advisable to have one prepared.
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