close
Share with your friends

Business Property Relief and family business succession planning

BPR and family business succession planning

Business Property Relief can catch family firms out. Make sure you know the rules.

1000

Also on home.kpmg

Man standing on staircase in dark

Keeping it in the family

The most recent Family Business Survey found that 85 percent of the UK’s family-owned firms intend to remain that way.

A family business often represents a significant part of the family’s wealth. So it’s important that its shareholders understand the tax implications of any succession plans.

Most family company owners know that Business Property Relief (BPR) can allow them to pass on the firm to the next generation without incurring inheritance tax (IHT). But the rules surrounding BPR aren’t as simple as they sometimes imagine.

The 51 percent test

Shares in unquoted companies, whose activities are wholly or mainly trading, can qualify for BPR at 100 percent.

For BPR purposes, ‘wholly or mainly trading’ is taken to be 51 percent or more.

Gauging whether a business meets this test means looking in the round at factors including turnover, profits, assets, and the time spent by the management team on company activities.

Excepted assets

Having established eligibility for BPR, the next step is to identify any excepted assets that would restrict the amount of relief available.

These are assets held by the company that are not used in the business or required for the future use in the business.

It is not uncommon for family businesses to use surplus funds to invest in non-core assets such as investment properties; or to retain greater cash balances in the face of ongoing economic uncertainty. Both could represent excepted assets.

Excepted assets limit the amount of BPR available. If a company holds excepted assets, then a proportion of the value of its shares will remain liable for IHT.

Understanding your BPR position

We often speak to clients who assume the shares in their family business will qualify for BPR in full. But a review of their business can reveal excepted assets, which could lead to an unexpected IHT liability on the death of a shareholder.

Where a restriction in BPR availability applies, it may be possible to restructure the business.

Options to achieve this may include:

  • restructuring where assets are held, or how activities are undertaken, within the company (or group)
  • looking to remove any excepted assets from the company (or group) 
  • restructuring the shareholding of the business

Any restructuring should form part of the long term sustainability and succession planning of the company, with the most appropriate option being dependent on the wider commercial objectives of the shareholders.

Understanding your options

BPR can be a valuable relief for family companies. But it’s important to know how the rules will apply to the shares in your business, and the options available to you.

The KPMG tax team can help you to:

  • understand your BPR position
  • review your succession plan
  • identify potential options to improve your BPR position 
  • align your business ownership structure with your long-term objectives

Any restructuring should form part of the long term sustainability and succession planning of the company, with the most appropriate option being dependent on the wider commercial objectives of the shareholders.

Please get in touch if you’d like to discuss BPR, or any other aspect of your IHT or succession planning. You can contact our experts on:

Tom Whybrow
Director
Private Client
E - tom.whybrow@kpmg.co.uk
T - +44 (0)782 502 5493

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal