Cross Option Agreements Funded before a Shareholder Dies
Funding cross option agreements before death requires unbinding reciprocal options backed by trust policies to preserve tax relief and complete share transfers.
Business Property Relief
Meaning
Statutory relief that reduces the value of business assets when calculating inheritance tax liabilities. Applying business property relief ensures that a trading company or an interest in a partnership can pass to successors without being liquidated to meet tax obligations. It allows for a reduction of either fifty percent or one hundred percent of the asset value depending on the nature of the business interest.
Qualifying Interest
Ownership of a sole proprietorship or a shareholding in an unquoted company usually qualifies for the full rate of relief. Smaller interests or assets used by a business but owned personally by a partner may only receive the lower rate. This business property relief is restricted to trading entities and generally excludes businesses that deal in land or investments.
Ownership Duration
Claimants must have owned the relevant business property for at least two years prior to the transfer. This minimum period prevents individuals from buying business assets solely to avoid tax immediately before death. Exceptions exist for assets inherited from a spouse or those replacing previous qualifying property.
Tax Application
Calculation of the tax due occurs after the relief is subtracted from the gross value of the estate. The remaining balance is then subject to the standard inheritance tax rates.