Get in Touch Menu

Why business owners should think twice before disposing of assets

28 March 2023

When looking to the future, or going through a change in circumstances, it’s likely that business owners will wonder whether selling or disposing of assets and interests is the right step to take.

Many are aware that some or all of their business assets might qualify for Business Property Relief (BPR), which reduces their estate’s overall liability for inheritance tax when they die.

However, if appropriate advice isn’t taken when approaching retirement, or perhaps when downsizing a business premises in the wake of the pandemic, it can often be overlooked that the sale or disposal of business assets can restrict the availability of BPR.

What does BPR offer?

Depending on the nature of the assets and the purpose of the business, BPR can offer either 100% or 50% relief on business assets or interests. Those that qualify must have been owned by an individual for at least two years before they die, and crucially, they must still be within that individual’s estate at the time of their death.

What happens when you sell or dispose of assets or interests?

Disposing or selling qualifying business assets and interests puts the availability of BPR at significant risk. Doing this often means business owners hold large cash sums instead, which subsequently don’t qualify for BPR, and this therefore increases the inheritance tax liability of their estates.

It’s important to remember that if appropriate legal and financial advice is undertaken in advance, steps can often be taken to ensure that the disposal or sale of business assets occurs in the most tax efficient manner. Not only is it possible to consider the tax position at the time of sale, but also to plan tax for the future, as there are options available to preserve the availability of BPR allowance.

What else do I need to consider?

Another matter, which is often overlooked, is updating a will to reflect a change in circumstances, as well as considering how to preserve inheritance tax reliefs such as BPR for generations to come.

For example, a business owner may choose to leave everything to their spouse, which would already qualify for 100% inheritance tax relief due to spousal exemption. However, a spouse may then choose to sell the business assets and investments after their spouse’s death, thus increasing the value of their own estate, which is chargeable to inheritance tax, when it may have been more tax efficient to pass these assets or interests on to children or grandchildren.

If you’re looking ahead and considering selling or disposing of business assets; or if you would like to make or update a will, our corporate and wills, trusts & probate teams would be happy to help.

Contact us

Our Legal 500-rated wills, trusts & probate team has the expertise to help you plan for the future and guide you through any difficult challenges that may arise, including those relating to business property relief.

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Laura Stone LLB (Hons), TEP
View profile
Laura Stone
Related services
Share this article
Resources to help

Related articles

Webinar: Restrictive covenants: drafting and enforcement top tips

Employment & business immigration

In this session lawyers from our employment and litigation teams will focus on the key elements to consider when drawing up restrictive covenants, the process for enforcement as well as…


Succession planning for business owners

Business exit & succession planning

It is important that every business has a crisis plan in place to make sure that the business can operate without key individuals if needs be. This should amount to…

Rachel Sugden LLB (Hons), TEP
Contact us