ACCA Advanced Taxation (ATX) Practice Exam

Which of the following qualifies for Business Property Relief (BPR) under Inheritance Tax (IHT)?

1. Shares in a Venture Capital Trust (VCT).

2. Investments in standard corporate bonds.

3. Shares in Enterprise Investment Scheme (EIS).

4. Cash holdings in personal accounts.

The correct answer is: Shares in Enterprise Investment Scheme (EIS).

Business Property Relief (BPR) under Inheritance Tax (IHT) is a significant relief that allows for the reduction or elimination of IHT on certain business assets. This relief aims to facilitate the transfer of family businesses from one generation to another without the financial burden of substantial tax liabilities. Shares in the Enterprise Investment Scheme (EIS) qualify for BPR because EIS incentivizes investment in small, higher-risk companies that meet specific criteria. When these shares are held for at least two years, they may qualify for BPR, thus allowing for a more favorable tax treatment under IHT. This is particularly relevant as EIS shares are inherently linked to businesses and their development, aligning with the objectives of BPR. On the other hand, shares in a Venture Capital Trust (VCT), investments in standard corporate bonds, and cash holdings in personal accounts do not qualify for BPR. VCTs, while offering tax advantages to individual investors, do not provide the necessary business ownership aspect required for BPR. Standard corporate bonds, being a form of debt rather than equity, are also not eligible as they do not represent ownership in a business. Cash holdings similarly do not meet the criteria for BPR, as they are not considered active business assets