If you leave your business to your spouse in your will to keep it in the family, this is IHT free, but there is a way to double this relief.
If you own all or part of a business you can transfer this to anyone in your will while you are alive as long as this meets the conditions for business property relief (BPR). This is open to shareholders of trading companies as well as businesses owned by partners or sole traders.
For example, John is 55 and a director shareholder of ABC Ltd. His share of the company is worth £300,000. John dies suddenly and leaves his whole estate to his wife Jill, believing that she will eventually give the shares to their children. The transfer to Jill is IHT exempt because she is John’s spouse and the subsequent transfer to the children qualifies for BPR. IHT is therefore avoided on the £300,000.
Alternatively, John could leave the business to the children with the understanding that Jill can immediately buy it back. This qualifies for BPR and is therefore IHT free. The money Jill uses to buy the business is IHT neutral because she pays £300,000 and in return receives an asset of equal value. When Jill later gives the business back to the children it qualifies for BPR again, so it will have had the relief twice.
Sounds good, but this relies on Jill having the money to be able to buy the business. Also, John’s will must NOT include a clause instructing the children to sell the business to Jill as this would break one of the conditions of BPR.
The best way to deal with this would be for John to leave a non-binding letter of wishes to his children confirming what he had in mind and what they had previously discussed.
IHT is an interesting area for business owners and their families, and we recommend robust advice is sought before a will is made.