Posted by Nick Day on 14 Aug 2014
Retained Cash and Business Property Relief
A shareholding in an unquoted trading company is usually covered by Business Property Relief (BPR) and therefore not subject to Inheritance Tax, but the ability to claim this relief may be undermined by a commercial decision to retain surplus cash.
HMRC are of the opinion that excess cash retained by a business is an excepted asset and therefore is unable to benefit from the BPR exemption. The recent economic downturn had led to hope that HMRC would look more favourably on retained cash reserves given that it would not be unreasonable for a company to hedge its bets and keep assets close in case of unexpected circumstances.
Chartered Institute of Taxation
Following discussion with the Chartered Institute of Taxation, HMRC has confirmed that excess cash will continue to be treated as an excepted asset, unless that cash is recorded as being retained for a specific commercial purpose. Any amount retained as a general buffer will continue to be treated as an excepted asset and not available for relief under BPR.
Since Inheritance Tax on shares will only be potentially payable in limited circumstance, such as if the owner of those shares dies while holding the shares (or within 7 years of disposing of them), or if gifted to a relevant property trust, the availability of BPR is often not considered. However, allowing surplus cash to build up over a number of years will make the problem harder and harder to address without incurring a significant income tax charge.
Tax Innovations Services for Business Property Relief
Tax Innovations Ltd can advise you on ensuring any claim for BPR is maximised as well as limiting the impact of stockpiled cash by devising a tax efficient profit extraction strategy.
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org
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