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January 30, 2014
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New Guidance on Availability of Business Property Relief

See our Spring 2014 Tax Update for more recent cases.

Business Property Relief (BPR) is a valuable inheritance tax relief, offering up to 100% relief against inheritance tax on qualifying business assets.

The CIOT, STEP and the ICAEW Tax Faculty have recently released technical guidance regarding the availability of Business Property Relief (BPR) for inheritance tax in certain situations.

The guidance has been approved by HMRC and therefore represents HMRC's current thinking on various issues.

Key points from the guidance include:

- Holdings of Surplus Cash by Trading Companies

The recent economic climate means that many companies are retaining higher cash reserves than would previously have been the case.

This cash is often surplus to the company's current requirements and is intended to act as a buffer should the business suffer from falling profits.

Whilst such cash reserves are unlikely to taint the trading status of the company (although depending on the precise facts of the case this issue should also be considered),  it is HMRC's view that the surplus cash is an asset not required for an identifiable purpose and will therefore be treated as an 'excepted asset'.

Excepted assets are excluded from receiving business property relief, therefore inheritance tax would be payable in respect of surplus cash held by the company.

Companies retaining significant cash reserves should obtain tax advice to confirm the availability of BPR and identify any actions/documentation that may be put in place to protect BPR.

- Partnerships & LLPs which Own Shares in Trading Companies

Corporate structures containing partnerships and LLPs have become increasingly common in recent years.

However there is a discrepancy between the situation whereby a company own shares in a trading subsidiary (where a specific section of the legislation permits BPR) and where a partnership/LLP owns an interest in a trading subsidiary.

In the latter case, unless the partnership/LLP itself carries on a trade then no relief will be available.  This is because the holding of the shares in the trading subsidiary is by itself an investment activity.

HMRC acknowledge this discrepancy however state that this "is what the legislation directs us to and is a result of the drafting of the provisions".

With this in mind, care should be taken to protect the availability of Business Property Relief when partnerships/LLPs are used in corporate structures.

The guidance can be downloaded from http://www.tax.org.uk/Resources/CIOT/Documents/2014/01/140106%20Taxguide%20BPR%20and%20LLPs.pdf

See our Spring 2014 Tax Update for more recent cases.

Contact us today to discuss your tax requirements.
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