BPR on failed PET - getting conflicting tax advice

Failed PET of property used in personal business

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Client owns property used by his business, so property would be eligible for 50% BPR. He gifts the property to his kids as a PET, but business continues to use it (for market rent). If client dies within 7 years - the PET fails. Is the property still relevant business property?

ie - do the rules look at the property status before the transfer - as a property owned by and in use by the clients own business - in which case the 50% BPR relief applies? Or does it consider the status in the hands of the kids as an investment property - and therefore the BPR test fails?

Replies (13)

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paddle steamer
By DJKL
14th Feb 2024 22:16

He does not own property so BPR fails, it is taxed as a lifetime transfer.

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By Tax Dragon
14th Feb 2024 22:30

Are you paying for this conflicting advice? It's a concern if paid-for advice conflicts on something this basic. Read s113A yourself; ss2 might need some explaining, but ss3 doesn't.

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Replying to Tax Dragon:
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By happybird
14th Feb 2024 22:49

Ss3 relates to the property still being owned by the transferee, which it will be. The question is does BPR apply if the use of the property is in the donor's business at the time of death, or does it need to be used in the donee's business at the time of death to be eligible?

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Replying to happybird:
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By Tax Dragon
15th Feb 2024 05:43

That's 3(b).

The consequences of failing either of the ss3 tests depend on whether you are reading that ss because of ss1 [your case] or ss2 [not your case - you can ignore].

Btw there isn't a category of relevant business property which consists of property that is owned by the transferor and used in his business. You may have misdescribed the scenario in the OP, but you have repeated it in your reply to me. Once may be regarded as a misfortune; twice looks like carelessness.

If, instead, you have given a correct description, and if the advice you are receiving does not conflict until it reaches the s113A clawback point, then I'm sorry but I would ditch both/all your advisors and get a new one. Maybe try a TEP.

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Replying to Tax Dragon:
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By happybird
15th Feb 2024 08:51

There certainly is a category of 'relevant business property which consists of property that is owned by the transferor and used in his business'! (land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled.)

The guidance (from Tolleys) is that a condition to qualify for BPR when the PET fails is that it 'must still qualify as relevant business property under the original rules' (though I can't see this specifically in the legislation).

What makes the property 'qualify as relevant business property under the original rules' - use by the donor's business on death or use by the donee's business on death?

We are trying to ditch the rogue advisor - but just trying to figure out which one is the rogue!!

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Replying to happybird:
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By Tax Dragon
15th Feb 2024 09:26

I might use "his business" to translate the legislative "a business carried on by the transferor"; I wouldn't use it to translate ss1(d), as you have - and "controlled" in 1(d) specifically refers to a company.

It's useful to be clear. And now we are, I think.

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Replying to Tax Dragon:
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By happybird
15th Feb 2024 10:04

I'm not clear on your response to my question though!

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Replying to happybird:
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By Tax Dragon
15th Feb 2024 11:28

Then I refer you back to ss3(b).

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Replying to Tax Dragon:
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By happybird
15th Feb 2024 08:51

There certainly is a category of 'relevant business property which consists of property that is owned by the transferor and used in his business'! (land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled.)

The guidance (from Tolleys) is that a condition to qualify for BPR when the PET fails is that it 'must still qualify as relevant business property under the original rules' (though I can't see this specifically in the legislation).

What makes the property 'qualify as relevant business property under the original rules' - use by the donor's business on death or use by the donee's business on death?

We are trying to ditch the rogue advisor - but just trying to figure out which one is the rogue!!

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Replying to happybird:
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By More unearned luck
15th Feb 2024 20:46

"Ss3[(a)] relates to the property still being owned by the transferee, which it will be".

Your crystal ball must be top notch since Dad isn't dead yet per your OP.

Try reading ss3(b) again substituting 'kids' for 'transferee'

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Replying to More unearned luck:
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By Tax Dragon
16th Feb 2024 08:17

Once a misfortune, twice a carelessness... three times a misunderstanding?

And the "personal business" in the heading makes three.

@OP, if you're receiving advice here, that's one thing and you can choose which of your advisors to retain based on this thread. If you're giving advice and using this thread for guidance, I would urge you to buy in some support. At least have someone give your advice a lookover before you present it to your client.

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By taxadvisercarlisle
21st Mar 2024 16:53

From croner-i

"If there has been a PET which has become chargeable due to the death of the transferor, or a chargeable transfer in life on which additional IHT charges are incurred as a result of the transferorʼs death, additional conditions need to be considered if the transfer is to remain eligible for BPR or APR.

If these additional conditions are not satisfied, business or agricultural relief will be reduced accordingly."

conditions:
(a) the transferee must have continued to own the property throughout the period from date of gift to date of transferor’s death and (b) immediately before the transferor’s death the original property is relevant business property on the part of the transferee.

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By happybird
21st Mar 2024 17:24

Thank you for the clear response!

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