BPR is a significant relief that should be protected if at all possible. As with taper relief, provided that the company is a trading company there should be no problem unless assets which are not business assets are put into the company. Where a company begins to carry on investment activities there can also be a problem if the level of those activities exceeds 50%. As with taper relief, advice needs to be taken in situations where a company wants to branch out into non trading activities.
The IHT problem caused on the sale of a company can be partly avoided if some IHT planning has already taken place in respect of the shares. If you are just starting up a company and there are other family members to whom you might ultimately want to give shares, consider putting some shares into trust for them at the outset. This will mean that on a sale the value accruing to those trusts will already be outside your estate. The changes in the IHT regime for trusts make early planning in this area even more essential.
As a company grows and its shares become ever more valuable, so an IHT problem may start to build. Lifetime transfers can be made but they are not immediately protected from IHT because a seven year clock usually runs on these. The risk of the clock stopping increases with age and so the overall IHT risk will increase. This becomes more important if the shares themselves are at risk of not having the benefit of BPR. Transfers into trusts, particularly discretionary trusts, can provide a route to consider but careful advice needs to be taken.
It is very easy to ensure that shares in a family company qualify for 100% BPR and then fail to use the relief. This can happen if one spouse, who has owned all the shares, passes those shares to their spouse through their Will and the surviving spouse decides to cash in the shares. The initial transfer will be exempt for IHT but the survivor will have cash and not shares in their estate. On their death the full value of the shares becomes taxable.
There are a number of routes which can be used to ensure that this situation does not arise but careful planning is required, preferably in advance!