Business Property Relief Insurance

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Business Property Relief Insurance

Business Property Relief Insurance or BPR Insurance, is designed to provide financial protection for your family if there could be IHT on some of your investments. It is a really good idea to speak with a financial adviser to determine if there could be IHT on your business assets and we can step in to provide you with the insurance that you need.

Our award winning advisers are here to make sure that your life insurance policy will protect your family.

What is Business Property Relief Insurance?

There can be times when your business investments can lead to an IHT liability for your family. BPR insurance is designed to provide your family with the money they will need to pay in inheritance tax.

This can happen when:

You have shares in company that isn’t listed on the Stock Exchange
You have shares listed in the Alternative Investment Market (AIM)
You have interest in certain businesses e.g. a partnership

Inheritance tax liability can be triggered if you die within 2 years of gaining these assets. Under current UK taxation rules this can mean that your family could see an IHT to the value of 40% of the asset. This will depend upon the value of your estate at the time of your death.

Why take out Business Property Relief Insurance?

When we look into the future most of us want to know that our family will be ok. We want them to have good health, to be happy, to not have to struggle and part of that can come down to money.

There is no inheritance tax between married couples or civil partners, so when we are thinking of this type of insurance, we are planning for tax that our children or next of kin will face.

Let’s take a look at an example:

You die within 2 years of acquiring £150,000 shares in a company that isn’t listed on the stock exchange.
As a single person with a primary residence worth more than £175,000, your nil-rate band for IHT is £500,000* as you qualify for the residence nil-rate band relief, on top of the standard nil-rate band.
Your estate is valued above the IHT nil rate band and your shares will be taxed at 40% of the full amount, because you died within the first 2 years.
This will mean that your next of kin will need to pay £60,000 in inheritance tax.

This example does not go into the IHT that would be due on your full estate, I am focusing solely on the business property relief part of the example. Inheritance tax on your estate would be considered for seven years and we have a dedicated page for insurance to cover this IHT here.

Using the example above we can use Business Property Relief Insurance to insure the 40% tax that would be due, with a life insurance policy that lasts for 2 years.

*correct as of January 2023

What type of insurance is used for Business Property Relief Insurance?

You will need a life insurance policy that is designed to last for 2 years. This policy will need to be set up as a level life insurance policy for 40% of the full value of the business asset.

The life insurance must be level as the IHT that could be due will remain the same for the 2 years. There are other types of life insurance for inheritance tax planning over short-timeframes, but these would not be suitable as they decrease over time. These are known as gift-inter-vivos policies.

There are two types of life insurance that you would usually use for Business Property Relief planning:

Single level life insurance – for someone that is not married or in a civil partnership
Joint life second death level life insurance – for a couple that are married on in a civil partnership

These life insurance policies are the ones that are typically used for BPR insurance, but every situation is individual and our advisers will explain the right option for you.

When should I take out Business Property Relief Insurance?

It’s a good idea to take out this policy as soon as you aware that you have a business asset that could trigger inheritance tax. When people think of inheritance tax they often imagine someone that is 50 or older, but that really isn’t the case.

Inheritance tax planning should be based upon your assets and not your age. The younger you are the cheaper the life insurance will usually be, so there is a good argument to get things in place sooner rather than later. But, there are many ways that financial advisers can support you to calculate potential taxes on your estate and we do recommend seeking full financial advice.

Our advisers will help you to arrange the life insurance that you need and we can help a trusted financial adviser to support your planning if you do not already have one.

Are there any extras to know?

When it comes to life insurance for business property relief you want to make sure that that policy is written into Trust. This is a legal document that directs the money to the person that you want to receive it. This would be the people that would need to pay the inheritance tax, which is often your children.

There are many types of Trust documents available with different insurers and it’s important to know some key parts to arranging them. There are some specific parts of a Trust that if not chosen correctly could mean that the life insurance payout goes into your estate, defeating the whole point of the cover.

Our advisers will arrange the Trust for you to make sure that a life insurance payout does what your family need it to do.

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Review by Andrew and Carol on 19th January 2023

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Dr Kathryn Knowles Phd

Author
This page was written by Dr Kathryn Knowles Phd, an award-winning insurance adviser. To read more about Kathryn please see her bio here

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