Inheritance Tax Business Relief

Inheritance Tax Business Relief. Image Credit: AdobeStock

Inheritance Tax Business Relief: What you need to know

There are a number of reliefs available that can reduce liability to IHT if you inherit the estate of someone who has died. One of these reliefs is known as Business Relief.

Inheritance Tax Business Relief

Inheritance Tax Business Relief. Image Credit: AdobeStock

It is valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

How to claim Business Relief

  • 100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
  • 50% Business Relief can be claimed on:
    – shares controlling more than 50% of the voting rights in a listed company
    – land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
    – land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example, if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

Claiming the relief can be a complicated process. We can of course help review the facts and advise.

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Rent-a-room: letting as office accommodation

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their homes. The current tax-free threshold of £7,500 per year has been in place since 6 April 2016. Homeowners using this scheme should ensure that rents received from lodgers during the tax year do not exceed £7,500.

The tax exemption is automatic if you earn less than £7,500 from qualifying rentals. The relief applies only to the letting of furnished accommodation and applies when a bedroom is rented out to a lodger.

HMRC issues specific guidance for individuals who seek to use rent-a-room relief where rooms in private homes are let as office accommodation. HMRC is clear that such claims do not qualify for rent-a-room relief and should be refused.

This does not apply to genuine lodgers such as students who are provided with study facilities in their lodgings. In such cases, HMRC would not want to deny relief. For example, where a lodger is provided with a desk which he or she uses for work or study.

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