I am in the process of administering an estate. The estate included assets which at the date of the Testator’s death included assets of £550k approx which were eligible for 100% BPR.
The Testator’s Will includes a nil rate band discretionary trust. The definition states that this should include the maximum sum available without incurring an Inheritance Tax liability and includes any assets eligible for BPR and/or APR.
During administration, the main asset of the business being the building was sold and the company is now in the process of being liquidated.
My question is once the company is liquidated and dividends paid out, do these assets then lose the BPR? I am reluctant to formally transfer the business assets into the NRB trust if they are going to lose their BPR in the very near future.
For further information, the residuary estate passes into a life interest trust with an overriding power of appointment for the surviving spouse.
Assuming 100% BPR applies here, the test is taken at death so these assets should pass into the trust. If you want to avoid it, you can of course make an appointment out now, which will be read back to the death for IHT.
I’m not sure I worded my original question too well. If the business assets go into the NRB trust and then the business is subsequently liquidated and the trust receives dividends at that point, is the BPR element then lost?
My worry is that we will end up with a NRB trust well over the IHT threshold and will then become liable for heavy exit charges?
Yes, BPR is lost as soon as the business ceases trading. You would still get BPR on the way into the trust but the BPR would (as you fear) be ignored when you come to calculate exit charges and would be irrelevant for the first decennial charge. If the sum is large and you expect to distribute in the short/medium term, it may make sense to make early appointments and take advantage of s.144.
If the company ceased trading following the testator’s death, BPR would likely to have been lost at that point.
Whatever happens, if the NRB clause specifically includes assets subject to BPR (as at the time of death) the shares will form part of the legacy.
As Andrew suggests, the trustees might consider appointing out the shares to take advantage of s.144 IHTA 1984. This will avoid any potential exit charge.
I note Richard refers to property being subject to BPR relief at only 50 %. My understanding is that applies only if the testator owns the property and, say, lets it to the company or the testator is a sole trader. Where the property is owned by a trading company and is used in the business it will usually be treated as a business asset and attract 100% relief.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Id assumed it was owned by the individual as the business assets would pass into the trust first, then be sold? The way the question is worded the building has been sold already.