Business property relief (also known simply as BPR or as “business relief”) was introduced by the UK government in 1976, to incentivise people to invest towards certain types of businesses.
The primary relief on offer concerns inheritance tax. As a general principle, if you purchase shares in a qualifying company and hold them for at least two years, then these shares can be passed on to your beneficiaries free of inheritance tax (IHT) when you die.
More experienced investors might have noticed that this sounds very similar to the Enterprise Investment Scheme (EIS), which also allows you to pass on EIS shares to beneficiaries, free of IHT, provided they are held for at least two years. This naturally raises the question:
“Do EIS shares also qualify for the tax reliefs available under BPR; can the benefits of both be combined in some way, to benefit the investor?”
To answer this question, we need to explain BPR and EIS in a bit more detail, so it is clearer to see how they relate to each other. Please note that this content is for information purposes only, and should not be taken as investment advice. The value of your EIS investment or BPR investment may go up or down over time, and you may get back less than you invested.
Business Property Relief
BPR is primarily concerned with incentivising investors based primarily by offering IHT relief. As mentioned, the scheme is over 40 years old and is a well-established scheme leveraged for estate planning purposes. However, the application of BPR varies from person to person, based on individual circumstances, as tax rules might change in the future.
Not all businesses are eligible to receive BPR status. Generally speaking, the sorts of conditions which might qualify a set of shares for BPR include the following:
- Shares in certain companies which are listed on an AIM (alternative investment market).
- Shares in certain companies which are not listed on a main stock exchange.
- You hold partnership in a qualifying business.
Different rates of business property relief are available to an investor, depending on the situation. For instance, it might be that you are entitled to 50% BPR on quoted shares which give you control of a company. On the other hand, you might get 100% BPR on unquoted securities which give you control of a company.
Certain businesses or activities are likely to exclude a business from BPR. For example:
- Businesses which only generate investment income (e.g. commercial property letting).
- A business which “wholly or mainly” in securities, land or buildings.
- A business which is not-for-profit (i.e. it is not maintained on a commercial basis).
- A business which is being closed.
Enterprise Investment Scheme
Generally speaking, if a company qualifies for the Enterprise Investment Scheme (EIS) then it is likely to also qualify for business property relief.
As mentioned elsewhere in our articles on our Bure Valley Group website, EIS offers many other attractive benefits to investors in addition to IHT relief:
- You can claim back up to 30% of your EIS investment from your Income Tax bill.
- Any capital gains you make on your EIS shares are exempt from Capital Gains Tax (CGT) provided you hold your shares for at least three years.
- If the EIS company fails then you can claim loss relief. The amount you get is determined by your investment value, multiplied by your highest Income Tax bracket.
These additional investor benefits render qualification for EIS status much harder for a company, compared to BPR. The rules are stricter for the former, so qualifying for EIS automatically makes a business eligible for the latter.
The generous benefits on offer to investors under EIS available to investors who are prepared to take on more investment risk, and who are focused on investment growth. For those who are primarily concerned with wealth preservation and reducing their IHT liability, then it is probably worthwhile consulting a financial adviser about the full range of options available to you.
EIS & BPR
Although we are not financial advisers here at Bure Valley Group, it is worth pointing out some common ways EIS and BPR are combined by these professionals. Sometimes, an investor might have surplus investable assets and so an EIS can be leveraged to reduce their Income Tax liability. The remaining assets might be put into BPR products to reduce IHT exposure.
Another popular approach is for a financial adviser to move a client’s EIS investment into a BPR product, once they have exited the EIS. This allows them to potentially retain the asset’s IHT exemption without needing to commit to a further two-year minimum holding period.
As you can see, there are some similarities between BPR and EIS, primarily in the domain of IHT relief. Sometimes they are used together for estate planning purposes. Beyond that, however, EIS offers a much wider range of investor benefits in the form of relief on capital gains, income tax and more.
Here at Bure Valley Group, we operate an exclusive network which joins successful, experienced EIS investors with innovative and exciting EIS projects which need funding. If you are interested in joining our network or finding out more, then we invite you to get in touch to discuss your EIS options with our team. Contact us via:
+44 160 334 0827