I had always been under the impression that a sole trader who owns the business premises from which they trade would be entitled to a 100% BPR on the value of the premises, (as well as on the business value itself). On checking this, I have come across the following:
Pitfalls - Sole traders
100% BPR is given for the transfer of the business as a whole.
There is no BPR given for the transfer of land or buildings, machinery or plant used wholly or mainly for the purposes of a sole trader business, unless those assets are owned by a trust and the sole trader business is run by the beneficiary who has a life interest in that trust.
(The above was obtained from a well-known accountancy practices website.)
The IHT Act 1984 states:
105 Relevant business property.
(1) Subject to the following provisions of this section and to sections 106, 108, F1
. . . ,
112(3) and 113 below, in this Chapter ârelevant business propertyâ means, in relation
to any transfer of value,â
(d) any land or building, machinery or plant which, immediately before the
transfer, was used wholly or mainly for the purposes of a business carried on
by a company of which the transferor then had control or by a partnership of
which he then was a partner; and
(e) any land or building, machinery or plant which, immediately before the
transfer, was used wholly or mainly for the purposes of a business carried on
by the transferor and was settled property in which he was then beneficially
entitled to an interest in possession.
The above seems to imply that BPR is not available on the value of the premises. Is this correct, or have I misunderstood?
I will admit to having been under a similar misapprehension at one time.
However, I agree with Haroonâs interpretation that business premises owned and occupied by a sole trader do not qualify for BPR.
Maybe this anomaly will be one of the issues addressed as a result of the current review of IHT as it would appear to disadvantage a significant number of UK businesses.
I think the website is over-simplifying. Sec 105(1) (d) and (e) by their terms exclude a sole beneficial owner from claiming 50% relief. But a sole beneficial owner may fall within sec 105(1) (a) - as in the Nelson Dance case.
There may be factual considerations about whether the taxpayerâs property interest is an integral part of the business- sometimes it clearly is: contrast a taxpayer who bought a pub or a shop as a going concern and continued it as such with a builder or mechanic working out of his garage at home, who is likely to find it more difficult.
If a greengrocer dies owning his shop he gats 100% relief as the shop is part of the business. The section Haroon mention do not take anything away from relief given previously in the Act to a businesss in 105(1)(a).
The most interesting case in this area is the Marquess of Hertford [2005] STC (SCD) 177 in which the Marquessâs executors argued successfully that the 8th
Marquess had carried on the business of opening an historic house to the public and that the whole of that house, Ragley Hall, qualified for BPR, even though parts of it were not open to the public and remained in private use.
As it happens I am in the course of completing an IHT 400 for a sole practioner solicitor who owned the building where he practiced from and which he fully occupied for business purposes. As far as I am concerned the building was an integral part of the business and should therefore qualify for 100% relief but reading this exchange, am I likely to fail?