If you are the executor of someone’s estate and they have left their company in their will, you may be able to secure business relief for inheritance tax purposes. In this article, Prestige Tax and Trust Services explains how to apply for business relief for inheritance tax.
Under UK law, the deceased’s estate may be required to pay inheritance tax. This tax is due if the value of the estate eclipses a specific threshold when they pass away, currently £325,000. As the executor of their estate, it will be your responsibility to ensure that any inheritance tax due is paid.
However if the deceased owned a company, you may be able to apply for business relief for inheritance tax. This relief reduces the value of the deceased’s firm and its assets, meaning that it can be used to lower or completely negate the estate’s inheritance tax obligations.
What qualifies for relief
You will first need to learn what qualifies for business relief before submitting an application. You can secure business relief at a rate of either 100% or 50%, depending on the asset in question.
- You can claim 100% business relief on a company, interest in a business or shares in an unlisted company.
- You can get 50% business relief on shares which control over 50% of voting rights in a listed company and on any land, buildings or machinery which was owned by the deceased and used in a company they either controlled or were a partner in.
- You can also get 50% business relief on any land, buildings or machinery which were used by the company and held in a trust that it has the right to benefit from.
There are some circumstances where you cannot apply for business relief e.g. if it is a not-for-profit organisation. Also, the company or asset must have been owned by the deceased for at least two years before their death to qualify for relief.
Applying for relief
To apply for business relief for inheritance tax, you must first work out the estate’s inheritance tax bill. At this point you must determine whether the deceased’s company or any assets it owns applied for business relief and when calculating this relief at 50%, base your calculation on its market value.
After you have completed this step, you will need to complete two forms. These are the IHT400 form and the IHT413 schedule. You will then need to send these forms, along with the other documents detailing the estate’s inheritance tax obligations, to your local probate registry to apply for probate. This is the document that gives you the power to administer the estate.
Prestige Tax and Trust Services
Serving as the executor of someone’s estate involves a number of complex tasks, such as applying for business relief for inheritance tax. In order to ensure you can fulfil your obligations adequately, you may want to enlist the help of an expert in this field, such as Prestige Tax and Trust Services. Our team has the legal acumen you need to meet your requirements as the executor of someone’s estate.