The importance of accurate BPR valuations
With 18 months before the proposed Business Property Relief (BPR) reform comes into force, affected individuals should start assessing the proposals’ impact on their plans for succession. From April 2026, introducing a £1 million cap on the existing 100% relief for qualifying business assets will impact estates and increase potential IHT liabilities for many business owners.
It is important to understand what your business is worth and what each individual shareholding may be valued at death so you can assess the potential IHT exposure and decide on the most tax-efficient plan for your business and assets.
Other changes to BPR were proposed in the Autumn Budget 2024 and can be found here. We expect further details on the change to BPR to be announced in due course.
How will the proposed changes affect the IHT charged on a qualifying business?
The proposed £1 million 100% relief allowance is a combined allowance for all qualifying agricultural property and business property that an individual owns or has an interest in. IHT will be chargeable at a rate of 20% against the value of any agricultural property/business property that exceeds this £1million cap, subject to the availability of any other reliefs / allowances such as the £325,000 nil-rate band.
This represents a significant tax policy change to what is a vitally important relief for businesses, and risks threatening the future of many established family businesses. If the proposals become statute, business owners will need to take timely advice and carry out a fundamental review of their succession plan.
If the shares you own in a qualifying business, are worth £10 million, in the event of death after 6 April 2026, £1 million of the business value will pass free of IHT, and the remaining £9 million will be taxed at 20% (assuming the nil rate band has already been utilised), resulting in an IHT liability of £1.8 million, compared to no IHT liability under the current rules. The higher the value of your business, the greater the IHT charge, where previously there would have been none.
With the expected increase in IHT charge, it is more important than ever to accurately understand the value of your business and excepted assets to ensure IHT is calculated accurately. This will avoid overpayment for those left to the business, as well as to ensure that careful succession or wider estate planning is considered.
Determining what assets are excluded from the relief
Valuing a business for BPR can be complex and many factors depend on whether an asset is excepted or not- there is therefore no exact set of rules for establishing the value of relevant business property. When valuing a business for BPR, the value is taken to be the net value of all the assets of the business, including goodwill. All such assets must be used in the business and all such liabilities incurred for business purposes.
Qualifying conditions
BPR applies to interests in trading businesses. It can apply to a sole trade, partnership interest or shares in a company.
- BPR applies to the full value of the business, other than to any excepted assets (eg assets owned by the business but not used in the trade).
- The business must be wholly or mainly trading (more than 50% trading).
- The business must have been owned by the taxpayer for a period of two years prior to the tax event.
- Valuing the shares in a private company or an interest in a business can be complex as the shares are not quoted- therefore the executors have no market they can refer to for a valuation of the business.
Excepted Assets
If the business satisfies the qualifying conditions above, there may still be assets within the structure that are not business assets or not being used by the business. There may also be assets that are genuine business assets, which were being used in the business, but which currently are neither being used nor being held for future business use. These are ‘excepted assets’ and their value must be removed or ‘left out of account’ from the business before BPR can be given.
50% or 100% relief
Not all businesses qualify for 100% relief. If you have a business or company that has been incorporated and you have arranged for the business property to be retained or owned outside of your limited company, even though the property itself is being used for the purposes of your business, there is the risk that you will only be able to apply BPR at 50% on the premises, meaning that the remaining 50% of the business premises will be subject to IHT.
How may I complement BPR with alternative planning strategies?
Once you have your business valuation, alternative tax-saving strategies and allowances that may complement BPR to reduce the amount of IHT payable should be considered.
Individuals affected by the proposed changes to BPR may now consider:
- Reviewing the business structure
- Wills and ownership
- Lifetime gifting or Trusts.
Each individual situation must be carefully considered, and advice tailored to find the optimal solution for your business.
For example, in gifting a ‘relevant business property’ (RBP) at least seven years before death, IHT will be avoided as it falls within a potentially exempt transfer (PET). So, while the donor is still alive, a PET is treated as an exempt transfer. If the donor survives the following 7 years IHT is not chargeable on the transfer. However, if the donor were to pass within seven years of making the gift, IHT is due on any amount above the nil rate band in force at the date of death.
Depending on your current position, gifting may not be the best option available for you, and alternative strategies may need to be considered.
Even if no IHT is at stake, or 100% BPR is available to you, agreeing on a business valuation is still vital in establishing beneficiaries’ base cost for CGT. This will also affect the amount of CGT the beneficiaries will pay if they sell the assets in the future.
The importance of BPR valuations upon passing
Once you pass and the business is left to the estate’s executors, they become responsible for informing HMRC of the value of the deceased’s estate. This drives the calculation of any IHT due, and the courts will only grant probate if HMRC is satisfied that all tax due, including IHT, has been paid.
Business assets that the deceased owned at their date of death, are likely to form a significant element of the overall estate, so they need careful consideration by valuation specialists.
By getting a handle on your business value early, you’re setting yourself up to tackle challenges head-on and plan proactively to ensure the most tax-efficient outcome.
How Price Bailey can help with valuing your business?
We are valuation specialists, dedicated to understanding the specifics of your business. Our valuation approach assesses all the unique factors that may influence the outcome, ensuring a precise and informed valuation.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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