Business Property Relief and Family Investment Companies

Why surplus cash in a trading company creates a BPR problem

Business Property Relief protects the shares and assets of a qualifying trading company from Inheritance Tax — but only to the extent that those assets are genuinely trading in nature. HMRC’s excepted assets rule allows it to strip out surplus cash held in the trading company from the BPR calculation at the point of transfer.

If your trading company is holding retained profits above what HMRC considers necessary for day-to-day operations, that cash is at risk of being excluded from BPR entirely. At 40% Inheritance Tax, the financial exposure on a significant cash balance can be substantial.

The same risk applies under the trading company test: as surplus cash grows as a proportion of total assets, the company’s investment character grows relative to its trading character, threatening the wholly-or-mainly requirement that BPR demands.

How a Family Investment Company addresses both risks

A Family Investment Company (FIC) is a private limited company established to hold and manage investment assets on behalf of the family. For directors facing BPR risk, its core function is straightforward: surplus cash is moved from the trading company into the FIC, removing it from the trading company’s balance sheet.

The result:

• The trading company holds only what it needs to trade — satisfying HMRC’s excepted assets test
• The trading company’s asset profile remains predominantly trading in character — satisfying the wholly-or-mainly test
• The surplus cash continues to be invested and managed, now within the FIC rather than within the trading company
• The director retains full control over both structures throughout

This is not about giving assets away. The director retains control. What changes is where the assets sit — and that structural change removes them from the BPR risk entirely.

How TLPI establishes and administers a FIC

TLPI is a specialist tax planning firm working exclusively with UK company directors. We establish and administer FICs for directors at the point where retained profits are creating BPR exposure.

The process involves:

• Reviewing your current trading company balance sheet to identify the BPR-exposed cash position
• Structuring the FIC to match your family circumstances and succession objectives
• Managing the legal and administrative process of establishing the company
• Ongoing administration of the FIC to ensure the structure remains properly maintained

TLPI does not provide financial advice or manage investments. What we provide is the legal structure within which assets can be held and controlled. How the FIC invests its assets is your decision as a director.

Combining a FIC with a SSAS: the Lifetime Business Tax Plan

For directors facing both a BPR problem (from surplus cash) and a Corporation Tax burden, TLPI’s Lifetime Business Tax Plan (LBTP) combines a FIC and a SSAS in a single integrated structure.

The SSAS addresses Corporation Tax — pension contributions are a legitimate business expense, deductible at 25%. The FIC addresses BPR — surplus cash moves out of the trading company and into a structure designed for long-term wealth management. The two structures complement each other without either having to do a job it was not designed for.

If you would like to understand how a FIC could protect your trading company’s BPR position, book a free 15-minute call. The conversation costs nothing and carries no obligation.