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Understanding Business Property Relief (BPR) for Inheritance Tax (IHT) Purposes

Business Property Relief (BPR) provides inheritance tax (IHT) relief of up to 100% or 50% on qualifying business assets, making it a valuable tool for reducing IHT liabilities. However, determining eligibility can be complex, particularly for businesses with mixed activities involving both trading and investment elements. For more information you can refer to HMRC’s Inheritance Tax Manual, specifically section IHTM25265

This article explains how BPR works, the impact of investment activities, and key considerations from recent tax tribunal cases.

How Business Property Relief (BPR) Works

BPR is available on certain types of “relevant business property”, such as:

  • 100% relief for shares in an unquoted trading company or an interest in an unincorporated business.
  • 50% relief for certain land, buildings, or assets used in a business.

BPR aims to prevent inheritance tax liabilities from forcing the sale of family businesses, ensuring continuity for future generations.

The ‘All or Nothing’ Test: Trading vs Investment Activities

Not all businesses qualify for BPR. The relief is not available if a business consists wholly or mainly (i.e., more than 50%) of:

  • Dealing in stocks, securities, or shares.
  • Dealing in land or buildings.
  • Holding investments.

This “wholly or mainly” test is an all-or-nothing rule:

  • If a business has 51% trading and 49% investment activities, BPR applies in full.
  • If the business shifts to 49% trading and 51% investment, no BPR is available.

This strict division has led to significant disputes between taxpayers and HMRC, as demonstrated by recent case law.

Key Case Law: How the ‘Wholly or Mainly’ Test is Applied

1. Executors of Keith Denis Lewis Beresford (Deceased) v HMRC [2024] UKFTT 952 (TC)

Case Overview:

  • The company’s main asset was a London commercial property.
  • Four floors were used for serviced office space with additional facilities (meeting rooms, air conditioning, maintenance).
  • Two floors were used for long-term commercial lettings to businesses.
  • The executors claimed BPR, arguing that the company was actively trading through serviced office operations.

Tribunal Decision:

  • The First-tier Tribunal (FTT) found that most activities were investment-based.
  • The provision of meeting rooms, maintenance, and utilities protected the investment value of the property rather than providing services to customers.
  • As the company was mainly engaged in managing investments, it did not qualify for BPR.

This case highlights HMRC’s strict approach to mixed-use businesses and reinforces that offering some services does not automatically make a business “trading” for BPR purposes.

2. Demetriou & Anor v HMRC [2024] UKFTT 830 (TC)

Case Overview:

  • The deceased ran a wild fishery business for many years.
  • Initially, it was a stocked fishery, actively managed and generating income.
  • Over time, it transitioned into a wild fishery, requiring less active management.
  • The executors claimed BPR, arguing that the deceased worked full-time in the business.

Tribunal Decision:

  • The business was primarily involved in land ownership and conservation, rather than active trading.
  • The income had declined significantly, reflecting its shift away from commercial activities.
  • The tribunal concluded the business was mainly an investment rather than a trading business, meaning BPR was denied.

This ruling underscores that simply working full-time in a business does not guarantee that it qualifies for BPR. The key factor is whether the business generates trading income rather than holding assets.

Practical Considerations for Claiming BPR

Given the complexities of the “wholly or mainly” test, it is crucial to:

  1. Evaluate Business Activities – Assess whether trading activities exceed 50% over a sustained period.
  2. Review Financials – HMRC looks at sources of income and asset usage when assessing eligibility.
  3. Consider Structuring Changes – If investment activities are approaching 50%, restructuring may be needed to retain BPR eligibility.
  4. Document Active Trading – Maintain records of staff involvement, services provided, and income sources to support a BPR claim.
  5. Seek Professional Advice – HMRC acknowledges that the test is not straightforward, and expert guidance can be crucial for securing relief.

HMRC’s Inheritance Tax Manual (IHTM25265) and Shares and Assets Valuation Manual (SVM111150) provide further guidance, but professional tax advice is strongly recommended.

Final Thoughts: Maximising Business Property Relief

BPR remains a valuable inheritance tax relief for business owners, but the strict “wholly or mainly” test means that businesses with investment elements may struggle to qualify. The recent Beresford and Demetriou cases demonstrate that simply being involved in running a business is not enough—the nature of the business activities is what determines eligibility.

For business owners concerned about inheritance tax planning and BPR qualification, early planning and professional tax advice are essential.

Need Help with BPR and Inheritance Tax Planning?

At Merranti Accounting, we specialise in inheritance tax planning and business structuring to ensure your business qualifies for maximum tax reliefs. Contact us today to discuss your situation and safeguard your business assets for future generations.

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