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March 22, 2022

Business Relief Basics: Have you recently sold your company?


in Financial Planning Insights

You might not know but whilst your company was trading, its value was outside of your estate for inheritance tax (IHT) purposes*.

However, as soon as you sold it, the total proceeds are back in your estate – meaning 40% could be liable to IHT.

There is a way to reverse this – by investing some or all of the proceeds into Business Relief (BR) Scheme.

BR has actually been around since 1976. When it was introduced, it’s main aim was to ensure that if the owner of a family business died, the business could survive as a trading entity, without having to be sold or broken up to pay an IHT liability.

Successive governments recognised the value of encouraging people to invest in trading businesses regardless of whether they run the business themselves – so offered tax advantages for doing so.

Invest in a business that qualifies for BR – and after 2 years, the value of those shares is outside of your estate for IHT. (Shares must still be held on death).

However, if you invest the proceeds of your own business – within 3 years of date of sale – there is no 2-year clock, the assets are immediately out of your estate.

And to avoid the investment value reentering the estate of your beneficiary on your death, the proceeds can be paid into Trust.

Tax planning made simple!

* Business Relief is available for trading businesses, as opposed to those dealing in stocks and shares, letting of property, and the holding and making of investments. A business is deemed trading if at least 50% of its activity is trading activity and less than 50% is investment activity.

This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a personal recommendation.