Property Insight - Spring 2011 - Menzies

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Property Insight - Spring 2011 - Menzies

BUSINESSPROPERTYRELIEF: WHOQUALIFIES?Business Property Relief (BPR) is a useful relief that is available to help individualsreduce their potential inheritance tax liability. However, care must be taken to planahead and ensure that the ability to claim BPR is not jeopardised.In order to qualify to claim BPR, certainconditions and criteria need to be met.Generally, BPR is only available where anindividual owns shares in an unquoted, tradingcompany. Conversely, shares in an unquotedinvestment company will not attract BPR.The distinction between shares in a tradingcompany and shares in an investmentcompany reveals a potential inheritancetax trap that many property developers areunaware of.Menzies Tax Partner Richard Godmon says:“Shares in an investment company, whosemain activity is investing in property, in orderto generate rental income and capital growthin the value of the property it owns, will notqualify for BPR. Therefore there is a risk that onthe death of a shareholder, that owns sharesin an investment company, inheritance tax willbecome payable by the deceased’s estate. Thisliability could be avoided with a little foresightand careful planning.”Furthermore, shares held in an investmentcompany carry further restrictions. Forexample, it is also not possible to avoid capitalgains tax on a gift of the shares to anotherindividual. However, this restriction would notapply to shares held in a trading company.So with regard to any planning that can bemade to avoid the tax problems associatedwith investment companies, it is importantto consider whether the conditions can becreated to change the nature of the investmentcompany so that it can be deemed to betrading.3

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