How to Avoid Inheritance Tax on Business Property

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Posted on March 06, 2017

Avoid inheritance tax using these tips

You may find you can significantly reduce inheritance tax on business property when you consider the following tax-smart tips.

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So the old saying goes, nothing is certain in life except death and taxes. And while personal inheritance tax is confusing enough for most of us, inheritance tax on business property can seem even more complicated. There are many pitfalls that can be avoided however, with a little foresight and careful planning.

You may find you can significantly reduce—or even eliminate—inheritance tax on business property when you consider the following tax-smart tips.

1. Ensure you make a will

The very first step in possibly avoiding inheritance tax on business property is to make sure you write a will, as this will ensure your personal wishes are carried out in accordance with inheritance law.

If there is no will and your assets end up being distributed under intestacy rules, this could mean inheritance tax is payable by your inheritors when they might not have had to pay any at all.

Depending on the circumstances, making a will could possibly help them legally avoid paying inheritance tax on business property altogether.

2. Make sure your business property qualifies as such

Many owners of buy-to-let properties consider this type of asset to be a business property. This would seem to make sense, given that it is a property and it provides them with an income! So whilst thinking of this type of property as a business is understandable, when it comes to working out your tax, it’s important to be clear that a buy-to-let property is an investment rather than a trading business.

A good accountant will be able to help you in classifying all of your assets correctly for tax purposes.

3. Look at Business Property Relief

There is a tax relief available for business property, so take a look at whether your assets can benefit. The rules vary depending on whether the property is owned by a sole trader, partner or director, and caps apply, so check with an accountant to see how you can benefit.

Depending on your circumstances, you could be eligible for tax relief of between 50% and 100%.

4. Stay below the nil rate band

You can avoid inheritance tax by staying below the nil-rate band. For a single person, inheritance tax is only payable after the first £325,000 of assets, or £650,000 combined for a couple. This can give you some leeway and flexibility if you gift part of your estate to your next of kin before you die, or if you transfer some to your spouse to balance the figures between you.

6. Transfer your assets

A very popular way of avoiding inheritance tax is to transfer your assets, for example to your next of kin, at least seven years before you die. It’s also good to know that any tax payable on an asset transferred within less than seven years of death will reduce on a sliding scale.

6. Place your assets in a trust

An excellent way to protect your loved ones from inheriting a huge tax bill is to put your assets in a trust. There are a number of options to choose from when it comes to types of trust, so take your time, shop around and think things over carefully.

If you decide to take the plunge, it’s essential that you seek out professional advice from an experienced accountant, since the rules governing taxation vary hugely depending on which type of trust you go for and how you decide to set it up.

7. Leave it to charity

This option won’t be for everyone, but there are many people who, through a variety of life circumstances, feel compelled to leave their assets to a charity of their choice.

Remember that leaving something to charity doesn’t have to mean your entire estate—you can opt to leave part of your assets to charity, including business property, which can reduce or avoid inheritance tax by bringing it under the nil band rate threshold completely, leaving a worry-free inheritance for your next of kin to enjoy.

Taking the worry out of inheritance tax on business property can be less complicated than you think. The key is to obtain the right advice from the right people. The experienced team at Clark Howes takes a fresh approach, providing clear and expert chartered accountancy services and business advice you can trust, so why not get in touch today.

Why bother trying to understand the intricacies of an increasingly complex tax system, when you can get expert advice instead?