Are fully-relievable BPR/APR assets separately identifiable from 50% relievable assets?

[pddavidoff (Paul Davidoff)]

I would be interested in other contributors’ views on this question which will become relevant in less than two weeks’ time. Apologies in advance if there is another thread on this topic - please do direct me there!

It is not uncommon to leave a specific legacy of BPR/APR assets to a discretionary trust, with residue to an exempt beneficiary (typically a spouse).

The legacy is often put in terms of including:

1. All assets qualifying for 100% relief.
2. Such part of any assets qualifying for relief at less than 100% - but whose taxable value does not exceed the available NRB (and presumably it is the executors who decide which of this “partly-relievable property” is allocated to the legacy).
3. Additional cash to top up to a taxable amount of the NRB (if need be).

No.2 could include assets which would have been relievable at 100%, but for the fact that the business / company holds some excepted assets: the rate will not necessarily be 50%, but it would make it less than 100%.

No.2 also includes the types of property which only qualify for 50% relief in any case, but also (from 6th April) those which would have qualified for 100% relief except that the £2.5m allowance has been used up.

Suppose the testator has £16m of shares in X Ltd and an unincorporated farming business (The Y Farm) worth £4m - assuming Y Farm has no additional non-agricultural value. There is legacy of fully-relievable and partly relievable property (up to the taxable value of the NRB, which is unused) as just described, to be held on discretionary trusts, with residue to the surviving spouse. The question which I have been considering is this:

Is it possible to make a gift of such portion of the X Ltd shares and such portion of the Y Farm as qualify for 100% relief, with some of the partially relievable portion of the shares and the farm (up to a taxable value of the NRB) being added to the legacy as well?

Or when we look at the shares in X Ltd and at the Y Farm, do we apply a “blended rate of relief” across all of the shares / the whole of the farm, so that there is in fact no “fully relievable property” and all of it is “partially relievable”?

Aside from the question of whether the change in the rules prevents the legacy from working (this will depend on the precise wording, but I consider that the precedent we use does still work), the difference in the two scenarios is that, in the first scenario, the legacy comprises a substantially higher value than in the second scenario.

The question does not arise under the present rules, as the whole of an asset will qualify for the same rate of relief and, for shares, all shares of the same class qualify for the same rate of relief.

I have not seen any commentary on this particular point, but my view is that the first scenario is correct, but I would be interest to hear others’ pearls of wisdom.

Paul Davidoff

Kingsley Napley

[jack (jack harper)]

Careful drafting can surely capture APR/BPR up to the £2.5 plus allowance and if relevant the same amount transferable from spouse/civil partner. Clues are provided by the early pioneers who made a definitional mess of leaving the NRB and TNRB on a DT will trust.

One also needs to think through the RPT charges on the trust:

1 the new trust allowance;

2 future growth in value;

and as before

3 rate of tax set by initial value settled before relief on exit charge in first 10 years;

4 related settlements and later additions

Jack Harper

Someone replied to a topic you are Watching.

| pddavidoff Paul Davidoff
27 March |

• | - |

I would be interested in other contributors’ views on this question which will become relevant in less than two weeks’ time. Apologies in advance if there is another thread on this topic - please do direct me there!

It is not uncommon to leave a specific legacy of BPR/APR assets to a discretionary trust, with residue to an exempt beneficiary (typically a spouse).

The legacy is often put in terms of including:

1. All assets qualifying for 100% relief.
2. Such part of any assets qualifying for relief at less than 100% - but whose taxable value does not exceed the available NRB (and presumably it is the executors who decide which of this “partly-relievable property” is allocated to the legacy).
3. Additional cash to top up to a taxable amount of the NRB (if need be).

No.2 could include assets which would have been relievable at 100%, but for the fact that the business / company holds some excepted assets: the rate will not necessarily be 50%, but it would make it less than 100%.

No.2 also includes the types of property which only qualify for 50% relief in any case, but also (from 6th April) those which would have qualified for 100% relief except that the £2.5m allowance has been used up.

Suppose the testator has £16m of shares in X Ltd and an unincorporated farming business (The Y Farm) worth £4m - assuming Y Farm has no additional non-agricultural value. There is legacy of fully-relievable and partly relievable property (up to the taxable value of the NRB, which is unused) as just described, to be held on discretionary trusts, with residue to the surviving spouse. The question which I have been considering is this:

Is it possible to make a gift of such portion of the X Ltd shares and such portion of the Y Farm as qualify for 100% relief, with some of the partially relievable portion of the shares and the farm (up to a taxable value of the NRB) being added to the legacy as well?

Or when we look at the shares in X Ltd and at the Y Farm, do we apply a “blended rate of relief” across all of the shares / the whole of the farm, so that there is in fact no “fully relievable property” and all of it is “partially relievable”?

Aside from the question of whether the change in the rules prevents the legacy from working (this will depend on the precise wording, but I consider that the precedent we use does still work), the difference in the two scenarios is that, in the first scenario, the legacy comprises a substantially higher value than in the second scenario.

The question does not arise under the present rules, as the whole of an asset will qualify for the same rate of relief and, for shares, all shares of the same class qualify for the same rate of relief.

I have not seen any commentary on this particular point, but my view is that the first scenario is correct, but I would be interest to hear others’ pearls of wisdom.

Paul Davidoff

Kingsley Napley