IHT - BPR - excepted asset ?

IHT - BPR - excepted asset ?

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company with net assets of £1m.  being trade related assets £600k + investment property £400k

company is def trading. 95% of t/o is trade, 80% of profit is trade and 100% of staff time is trade.

I understand the concept of excepted assets in that we exclude assets not being used for business purposes (common examples are excess cash and directors yaucht) but in this case the propety is used for the rental business.

would BPR be aviailable on £600k or £1m?

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By LyneT
26th Jun 2012 15:57

You mention that the company has net assets of £1m.  It is likely that the value of the company exceeds that.  (Goodwill, use of market values etc etc)

So the value you would use as being eligible for BPR is

Value of company   x  600/1000

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By blok
26th Jun 2012 17:11

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thanks - lets assume for now that the values given were the market value and the g/w was nil.

I have heard it explained that the way to consider BPR is to ask.

a) is the company trading - yes it is.

b) are there any assets on the balance sheet not used in the business. - NO. 

therefore the value for BPR is £1,000.  i.e. the rental business is sheltered within the company.

 

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By gbuckell
27th Jun 2012 10:30

Not excepted asset

As you say, the first hurdle to pass is that the company is mainly trading. From the figures given there seems to be no question over this.

The second hurdle is whether any assets are excepted. The key here is that this only applies to assets not used in the company's business - it does not refer to trade. So a property used to rent out is used in the company's business. The argument is that, for a company (not necessarily for an individual) any asset gainfully employed is used in its business.

So, as far as I can see, the excepted asset rule only applies to surplus cash and, perhaps, assets used for the shareholders' benefit such as the example you give of the director's yacht (could one argue that this is used in the business on the grounds that it is providing an incentive to a key employee?).

I proved this a few years ago with HMRC with a company that was probably 85-90% investment property by value but had enough trade to satisfy the mainly test by turnover, employee time and management time. HMRC accepted 100% BPR after enquiry.

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By blok
27th Jun 2012 11:06

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gbuckel - the reason I asked the question is because I noted that you had raised this point about a year ago and were sure that it was correct.  I had hoped that you would reply.

I tend to agree with you beacuse when you look at the farmer case and the brander case HMRC didn't seem to take the point.

Another reason I asked was that many people interpret this differently.  as can be seen above by LyneT who is very knowlegable on this area.

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By LyneT
28th Jun 2012 09:21

If you mean that the investment property is used in the company's business and is not rented out to third parties, then I would agree that there would be no restriction of BPR.

However, if the property is rented out to third parties then BPR is denied by IHT 1984 so 108 and s 112.

s108 says no BPR "if the company's activities consist wholly or mainly of dealing in securites, stocks and shares, land or buildings"

s112 no BPR "where business activity is attributable to the value of excepted assets"

I have seen two cases I have dealt with denied BPR for rental properties.

 

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Replying to nogammonsinanundoubledgame:
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By blok
28th Jun 2012 10:47

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LyneT wrote:

s108 says no BPR "if the company's activities consist wholly or mainly of dealing in securites, stocks and shares, land or buildings"

IN MY EXAMPLE THE COMPANY IS A TRADING COMPANY

IT IS NOT DEALING IN LAND OR BUILDINGS

s112 no BPR "where business activity is attributable to the value of excepted assets"

EXCEPTED ASSETS ARE NOT ASSETS THAT ARE USED IN THE BUSINESS (RENTING OF PROPERTIES IS A BUSINESS)

I have seen two cases I have dealt with denied BPR for rental properties.

IN THE CASES YOU MENTION, DID THE COMPANIES HAVE A TRADE AS WELL?

 

SORRY FOR THE CAPITALS!

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