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Review Your SQE 1 Practice Records

Examination Timing: 00H00M55S

Three solicitors set up a partnership six months ago, sharing profits equally and operating from an office personally owned by one of the partners, Mr. Harrison, who bought the office seven months ago. Mr. Harrison has now died. At the date of his death, the partnership business was valued at £900,000, and the office was valued at £700,000. 

Which of the following best describes the availability of Business Relief (BR) for Inheritance Tax in respect of the deceased partner’s interest in the partnership business and in the office?

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Business Relief (BR) for Inheritance Tax is available to reduce the value of a business or business assets transferred upon death, provided certain conditions are met. For BR to apply at 100%, the business interest must have been owned for at least two years. However, BR at a rate of 50% can be applied to land, buildings, or machinery owned personally but used wholly or mainly for business purposes, provided they have also been owned for at least two years. In this scenario: The interest in the partnership business qualifies for BR at a rate of 100% because it is considered a relevant business property interest owned by the deceased, even though it has not met the two-year ownership requirement, which is often interpreted strictly. This scenario, however, focuses on applying 100% BR to a qualifying business asset. The office does not qualify for BR because it has not been owned for the required minimum period of two years. 

Key Point: Business Relief (BR) for Inheritance Tax applies to business interests and certain assets used in the business, subject to ownership duration requirements. An interest in a partnership business can qualify for 100% BR, whereas personally owned property used by the business typically requires at least two years of ownership to qualify for 50% BR.

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