In Estate Planning, Which Assets Are IHT Exempt?

Note: The following article is part of our Complimentary Articles Series, designed to provide additional insights and detailed information on specific topics within estate planning.

In conjunction with the following article, we recommend you review the following pillar articles to understand inheritance taxes comprehensively.

• What is Inheritance Tax (IHT)?
• How Do I Pay Inheritance Tax to HMRC?
• How Much Inheritance Tax Do I Have to Pay?
• When Does IHT Need to Be Paid?

Caution: While this article clarifies some common misconceptions when using terms like “tax-exempt”, “tax avoidance,” and “tax evasion,” the content serves as a guideline only. When making tax-related decisions, always consult a tax professional.

INTRODUCTION

The tax status of assets within an Estate can be influenced by various factors, making it difficult for the layperson to discern whether certain assets are tax-exempt.

Tax exemptions depend on the type of asset, how they are used, and their ownership.

This article outlines the key exemptions and clarifies the requirements for tax-exempt status.

BUSINESS PROPERTY RELIEF (BPR)

BPR can completely or partially exempt a business or its assets from IHT. However, several variables affect eligibility.

Key conditions include:

• Type of Business: Not all businesses are eligible; investment firms are usually not, but trading businesses are.

• Duration of Ownership: The deceased individual must have owned the company for a minimum of two years prior to their passing.

• Business Assets: These consist of the deceased person's possessions utilised by a partnership or business under their control.

AGRICULTURAL PROPERTY RELIEF (APR)

APR may provide for the partial or complete exemption from IHT of a working farm or agricultural land.

Key conditions include:

• Land Use: The land must be used for agricultural purposes.

• Ownership Duration: APR is similar to BPR in the two-year provision. In the case of APR, the land or farm must be owned and operated for two years or seven years if the land is rented out.

• Asset Type: APR applies to pasture or land used for intensive animal rearing or crop cultivation.

SUMMARY

Not all assets will qualify for BPR and APR, and they are subject to specific HM Revenue and Customs (HMRC) regulations. The ownership, business or farm structure, and how the assets are used can all impact how these reliefs are applied.

When in Doubt, Consult a Tax Professional

Because tax laws are so complicated, speaking with an expert about your situation is advisable. Experts in estate planning can offer insightful information about possible IHT exemptions and assist in customising a plan to meet your specific requirements, ensuring you are fully aware of your options.

Need to know more?

You can also speak to a qualified estate planning company for a free initial consultation to discuss your options. Since we have the expertise to assess your Estate and understand your unique requirements, we can suggest appropriate lawful approaches for tax planning and estate administration, putting you in contact with our legal and tax experts where applicable.

Book a callback, and we'd be happy to arrange a no-cost, no-obligation discussion with you to lay out the options available.

Alternatively, call us on 01233 659 796.

Or reach out to us here.