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How to avoid paying Inheritance Tax after the sale of a business

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WHATEVER THE REASON, people often neglect to review the Inheritance Tax (IHT) implications that could arise from selling their business writes Tony Byrne pictured, managing director of Wealth & Tax Management. This is particularly important in instances where the individual’s business qualified for Business Relief, as the sale of the business is likely to mean the proceeds become liable to IHT whereas previously the business qualified for 100% tax exemption.

One useful option available to business owners would be to reinvest the proceeds from the sale of their business into an investment that qualifies for Business Relief. Provided the proceeds were reinvested within three years of the date of sale, this would mitigate the IHT liability while ensuring the individual retained control over, and access to, their money.

The individual can expect to either retain or regain IHT exemption on the proceeds almost immediately, as soon as the week after making the investment, which could prove particularly important for a person in ill health.

Also, people do not have to wait a further two years for their Business Relief-qualifying investment to become free from IHT. Once the proceeds have been invested, their investment benefits from ‘Replacement Relief’. This allows business owners and investors to replace one BR-qualifying asset with another within three years, without ‘resetting’ the two-year holding period.

For business people, one of the most appealing aspects of this solution is that it ensures they retain control over their investment, without having to ‘gift’ money away to reduce their IHT liability. The money is available should they need it to pay for care costs or any other outgoings, although any money withdrawn from the investment no longer becomes IHT-free and could form part of their taxable estate.

If you are interested in ways to save taxation, why not take advantage of a one-hour Discovery Meeting either at our offices or via a video conference call at our expense worth £270 to each of the first three readers who contact us before 30 September 2023? You know it makes sense… We offer a great cup of coffee too.

Ring us on 01908 523740 or for free on 0800 980 4516 or email wealth@wealthandtax.co.uk and quote September 2023 offer to book your free discovery meeting.

RISK WARNING The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This article is based on my own observations and opinions.

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