Introduction

Business Property Relief (BPR) is an important statutory Inheritance Tax (IHT) relief, potentially saving 40% IHT. 

HM Revenue & Customs (HMRC) offer a non-statutory clearance service for business owners in relation to the BPR consequences of transactions that affect the business. This service therefore offers business owners an opportunity to verify whether their business will qualify for BPR in the eyes of HMRC. 

Availability of clearance service

In order for the clearance service to be available there must be an immediate charge to IHT, such as would arise on most gifts into and out of trust, but not on gifts to other individuals. Both individuals and trustees are able to apply for clearance. In practice, HMRC may choose to limit responses to clearance applications to cases where the potential IHT charge is significant.  

In addition, there must also be material uncertainty surrounding the availability of BPR. This may include the effect of certain transactions the company is considering, or has done, such as takeovers and flotations. 

There are certain exclusions from the BPR clearance service. In addition to being unavailable on gifts to other individuals, which are potentially exempt transfers for IHT purposes, clearance cannot be sought in relation to the ten-year anniversary charges that apply to most trusts; the potential consequences of entering into a Deed of Variation to revise the way in which a deceased person’s estate is distributed, and the disposition of property under a will where this is conditional on the availability of BPR. The BPR clearance service team do not provide clearance on valuations, though other HMRC teams may be able to comment on valuations in some circumstances. 

Qualifying property

Below are some examples of the types of property which currently qualify for 100% BPR:

• Property consisting of a business or an interest in a business;
• Unquoted shares in a company;
• Securities of an unquoted company that either by themselves, or together with other shares or securities owned by the donor, give the donor control of the company.

Only certain types of business qualify for relief. In particular, businesses do not qualify where they wholly or mainly consist of dealing in securities, stocks or shares, land or buildings or the making or holding of investments. Where an eligible business is carried on, relief will be restricted to the extent assets are held which are not needed for business purposes.

Similarly, shares or securities held in companies are not eligible for relief where the companies concerned do not themselves satisfy the aforementioned tests and BPR may be restricted where the companies concerned hold assets which are not required for business purposes. These restrictions are relaxed in the case of a company that wholly or mainly acts as the holding company of a group where one or more of its subsidiaries undertakes qualifying activities. 

For example, if a taxpayer owns unquoted shares in a trading company with an investment business and the company has recently bought or is considering buying a portfolio of residential property for rental, then this could result in the loss of BPR. Likewise, where there is (or it is proposed that there will be) a major reconstruction, for example a flotation or takeover, the potential impact on the availability of BPR should be considered if an event involving an immediate charge to IHT is being considered. 

The clearance procedure

HMRC provide clearances both pre and post-transaction. Pre-transaction clearances remain valid for six months; clearance may need to be reapplied for if a proposed transaction does not occur within the six-month period. 

As the BPR clearance service is non-statutory, HMRC can choose whether or not to respond to clearance applications, and, as noted above, may choose not to provide clearance where the potential immediate IHT charge is not considered to be significant. 

HMRC state that they usually respond to clearance applications within 28 days of receipt, though they may take longer to reply where the issues involved are difficult or complicated. There is no deadline by which HMRC are obliged to respond to non statutory clearance applications. 

Reliance on clearances provided by HMRC

In general, applicants should be able to rely on any clearances received from HMRC. However, for the clearance to be considered binding it will be necessary to show that all relevant facts and details of issues relating to the transaction have been provided to HMRC. It is not possible to rely on a clearance if there are any changes to the situation after clearance has been sought, or if there are any changes to the law or HMRC’s interpretation of thereof. 

Notably, one person cannot rely on a clearance obtained by a different person, even if their situation is alike. For example, if all the owners of a part trading, part investment business wish to benefit from a BPR clearance, each of those individuals must submit a separate application. 

The process

With regard to the submission of the clearance application itself, HMRC have provided a checklist which details all of the points that need to be brought to their attention in relation to the application. The list can be found in Annex C at: https://www.gov.uk/government/publications/non-statutory-clearance-service-guidance-annexes.