With the rate of inheritance tax at 33%, it is important to access all available reliefs to protect an estate from unnecessary exposure to Revenue.
Taxation and estate planning is particularly relevant to businesses since most prioritise capital preservation and growth. Fortunately, the rate of tax on transfers of qualifying business interests can be reduced to zero % or limited to a maximum of 3.3%, depending on the facts of the case.
This is achieved through a relief called 'Business Relief' which applies to a business or an interest in a business. Below are five tax-tips to note when considering a transfer of business assets:-
Is the underlying company carrying out a ‘trade’? Generally, in order to qualify for Business Relief the business entity, whether a sole-trade, partnership or company, must be trading and can’t simply hold property or cash.
■ Assets held outside a trading entity
Are the business assets held within the trading entity or held personally by the owners? The transfer of assets at different times can dilute entitlement to Business Relief. This is particularly important in family situations where parents may wish to retain ownership of certain assets.
■ How long have the business assets been held for
Have the business assets been held for a minimum of two years? There are replacement provisions which enable new assets to qualify for relief.
Will you or your beneficiaries continue to carry on the business and will you require access to capital? The effective rate of tax will depend on how quick and easy is it to withdraw capital partially or fully from the business after the transfer.
■ Business Loans
Are there loans due by the business to you which will remain unpaid? Planning is necessary to ensure that these loans do not complicate your estate and expose your next of kin to inheritance tax at 33%. With care, unpaid business loans can be structured to qualify for Business Relief.