By Laura Stone, senior associate solicitor at Willans LLP 

When looking to the future, or going through a change in circumstances, it's likely that business owners may wonder whether selling or disposing of assets and interests is the right step to take.

Many are aware that some or all of their business assets qualify for Business Property Relief (BPR), which reduces their estate's overall liability for inheritance tax when they die.

However, if appropriate advice isn't taken when approaching retirement, or perhaps when downsizing a business premises in the wake of the pandemic, it can often be overlooked that the sale or disposal of business assets can restrict the availability of BPR.

What does BPR offer?

Depending on the nature of the assets and the purpose of the business, BPR can offer either 100 or 50 per cent relief on business assets or interests. Those that qualify must have been owned by an individual for at least two years before they die, and crucially, they must still be within that individual's estate at the time of their death.

What happens when you sell or dispose of assets or interests?

Disposing or selling qualifying business assets and interests puts the availability of BPR at significant risk. Doing this often means business owners hold large cash sums instead, which subsequently don't qualify for BPR, and this therefore increases the amount of inheritance tax liable on their estates.

It's important to remember that if appropriate legal and financial advice is undertaken in advance, steps can often be taken to ensure that the disposal or sale of business assets occurs in the most tax efficient manner. Not only is it possible to consider the tax position at the time of sale, but also to plan tax for the future, as there are options available to preserve the availability of BPR allowance.

What else do I need to consider?

Another matter, which is often overlooked, is updating a will to reflect a change in circumstances, as well as the consideration that inheritance tax reliefs such as BPR can be preserved for generations to come.

For example, a business owner may choose to leave everything to their spouse, which would already qualify for 100 per cent inheritance tax relief due to spousal exemption. However, a spouse may then choose to sell the business assets and investments after their spouse's death, thus increasing the value of their own estates, which is chargeable to inheritance tax, when it may have been more tax efficient to pass these assets or interests on to children or grandchildren.

If you're looking ahead and considering selling or disposing of business assets; or if you would like to make or update a will , Willans' corporate and wills, trusts and probate teams would be happy to help. 

Please get in touch with Laura on 01242 542948 or email laura.stone@willans.co.uk.

Laura is a senior associate, solicitor in our highly rated wills, trusts & probate team. As well as preparing wills, inheritance tax planning and estate administration, Laura is co-chair of the firm's charity committee and works closely with charities in the local area.