Business owners 'confused about inheritance tax planning'

Date: 1st September 2008

One industry expert has said that a growing number of small businesses are mistakenly assuming that their firm will qualify for inheritance tax relief under the business property relief (BPR) rules.

Writing on the Crains Manchester Business website, Mike Harrison explained that there were several important issues that many bosses overlooked when tax planning.

He said that most owners were aware of the 100 per cent relief from inheritance tax (IHT) for trading businesses.

However, he added that many bosses "fail to take into consideration that BPR only applies to assets that are being used for trading purposes" when tax planning.

"For instance, if you own a clothing manufacturing business, the factory itself and the machinery used in production would fall comfortably under BPR exemptions. Yet assets that are not used for the purposes of trade will not qualify for relief," Mr Harrison explained on the website.

He pointed out that it was "possible to gain IHT relief on cash reserves", but only if it could be proved that the funds had "been built up to fund business expansion".

In general, Mr Harrison said that many small business owners did not think about inheritance tax planning. However, he concluded: "Planning ahead is imperative to reduce the financial burden on those who take over the business."