Although Inheritance Tax may be avoided if you leave your business to a spouse or civil partner, your children or other beneficiaries may be obliged to pay Inheritance Tax.

By gifting your business assets in your Will into one or more Business Trusts the surviving spouse and children can make use of the assets during their lifetime and are not subject to Inheritance Tax on the second person’s death. The trust(s) can be used in conjunction with a Cross Option Agreement within your Will.

Business property relief (BPR) is a relief from inheritance tax for certain business assets. When its conditions are met, the value of gifts of the business assets are reduced for inheritance tax purposes by either 100% or 50%.

If BPR is available over a business, the Will should be drafted to take full advantage of this. For example if the intention is that the business is sold, a direction to sell the business should not be included in the Will as this will mean that the business is subject to a binding contract for sale and BPR will not be available.

If the client is married and they are considering letting their spouse benefit from the business they may instead consider a business property relief trust to benefit the spouse rather than leaving to them outright to protect the surviving spouse if the business should lose its BPR between first and second death.