What is the Relief?

Business property relief (BPR) is a relief from inheritance tax (IHT) for certain shareholdings or interests in a business known as relevant business property (RBP). Everyone in the UK has an inheritance tax allowance of £325,000, known as the nil-rate band. Inheritance tax must be paid on the estate for anything valued higher than this amount, usually at the 40% rate. 

If certain conditions are met, BPR can provide relief from IHT at either 100% or 50%, depending on the RBP being transferred. Therefore, BPR is a very valuable relief that many business owners will seek to take advantage of when it comes to succession planning.

Does the property qualify as RBP?

To qualify as RBP, the following conditions must be satisfied:

  1. the property in question must:
    • fall within one of the prescribed categories of property (including shares in an unquoted company or an interest in a business); and
    • have been owned by the transferor for a period of at least two years prior to the transfer;
  2. the underlying business must show that it was carried on for a gain and that it did not wholly or mainly consist of prohibited activities (dealing in securities, stocks, shares, land, or buildings or making or holding investments).

The ‘Binding Contract Trap’

Even if the property in question satisfies the above conditions, BPR will not be available where the RBP is subject to a binding contract for sale at the time of the transfer (known as the binding contract trap).

The binding contract trap is effectively a clause contained within legal documentation such as a shareholder’s agreement, which obliges the personal representatives of deceased partners, directors, or shareholders to sell the RBP to the surviving business owners, who in turn are obliged to purchase.

In the presence of such a clause, BPR will not be available. This is to ensure that BPR is only available where a transfer involves a business asset rather than the cash proceeds of a sale. 

Practical Point: How to avoid the trap?

To avoid the binding contract trap, BPR should be considered at the outset when drafting legal documentation such as wills, shareholder’s agreements or articles of association.

Arrangements for the transfer of RBP contained within legal documentation can be structured and drafted in such a way to ensure that BPR remains available. For example, HMRC will generally accept the following clauses (which do not create a binding contract for sale):

  1. accruer clauses: where the deceased’s RBP passes to the surviving business owners who are required to pay the personal representatives a specified amount; or 
  2. options: where the deceased’s RBP falls into their estate and the surviving business owners have the option to purchase as opposed to being obliged to purchase. 

Which rate of BPR is applicable?

The rate of relief available will depend upon the type of RBP in question.

100% relief will be available on:

  1. a business or an interest in a business; or 
  2. shares in an unlisted company.

50% relief will be available on:

  1. shares controlling more than 50% of the voting rights in a listed company;
  2. land, buildings, or machinery owned by the transferor and used in the business that they were a partner in or controlled; or
  3. land, buildings, or machinery used in the business and held in a trust that the transferor had the right to benefit from.

Ignoring the impact of IHT could be a costly oversight. For the financial year 2020/21, HMRC reported IHT receipts of £5.33 billion. Therefore, careful consideration should be placed on the reliefs available and how these may significantly improve your overall IHT bill. 

Here to help

The Commercial and Wills, Trusts and Probate teams can assist with drafting such documentation and reviewing the terms of any such arrangements to ensure the relief remains available. If you would like to discuss business property relief in further detail, you can contact our team below.

Contact Us

You can contact a member of our team using the contact form below or by phoning us on

0161-941-4000