A tax case recently decided in Scotland has implications for businesses in which a trade that qualifies for Business Property Relief (BPR) for Inheritance Tax (IHT) purposes is carried on alongside one which does not.
BPR operates to reduce the value of a business asset to 50 per cent of its market value or nil for IHT purposes. It is therefore a very valuable relief when passing on a family business.
In the case in point, a landed estate operated a farming business (which qualifies for BPR) as well as letting businesses (which do not qualify for BPR).
Despite the opposition of HM Revenue and Customs, the Special Commissioners concluded that the estate was managed as one business, so the presence of letting income did not prevent BPR being available.
Splitting businesses can often have tax advantages, particularly for VAT and Income Tax purposes, whereas this case raises the possibility that combining separated businesses might constitute part of an IHT planning exercise for family businesses. Careful consideration must therefore be given to all applicable taxes, as well as the practical issues, before any action is taken.
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HMRC v Brander  UKUT 300 (TCC).