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?
Replies (6)
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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
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.
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.