LLP Interests and Inheritance Tax: Does BPR Apply to LLP Memberships?
An interest in a trading LLP qualifies for 100% Business Property Relief under s105(1)(a) IHTA 1984. Solicitors, accountants, and other professional services LLP members with at least 2 years' membership can claim full BPR — subject to the April 2026 £2.5m cap and the wholly-or-mainly trading test.
BPR Availability by LLP Type
| LLP Type | BPR Available? | Notes |
|---|---|---|
| Solicitors' LLP | Yes — 100% BPR | Legal services is a trading activity. Profit-sharing members have an interest in the business for s105(1)(a). Standard HMRC position: solicitor LLPs qualify for BPR. |
| Accountancy LLP | Yes — 100% BPR | Professional services: wholly trading. HMRC consistently accepts BPR for accountancy LLP interests. |
| Property investment LLP | No | Property letting/investment is not a qualifying trade. The 'mainly' test (over 50% by value/activity) fails. Same exclusion as for sole trader property investors. |
| Mixed trade/investment LLP | Depends — wholly-or-mainly test | If more than 50% of the LLP's activities and asset value relate to trading (not investment), BPR may apply. Complex analysis needed — HMRC will scrutinise. |
| Property development LLP | Possibly — development is trading | Building and selling property is a trade. Holding completed investment properties is not. An LLP actively developing and selling qualifies; one holding rental stock does not. |
| LLP with significant cash/investment assets | Reduced or nil | Excepted assets (cash above working capital needs, listed investments) are carved out from BPR even for qualifying trading LLPs. |
| Salaried member (disguised employment) | No — no genuine business interest | A salaried member is taxed as an employee under the salaried member rules. For BPR, if the member has no genuine share in the business (no capital at risk, no genuine profit share), the interest may not qualify under s105(1)(a). |
Frequently Asked Questions
Does BPR apply to an interest in an LLP?
Yes — an interest in a trading LLP can qualify for 100% Business Property Relief (BPR) under s105(1)(a) IHTA 1984, which provides relief for 'a business or an interest in a business'. An LLP is a body corporate for Companies Act purposes, but for income tax it is transparent — profits are allocated to members, not the LLP. For BPR, HMRC treats an LLP member's interest in the same way as a partnership interest in a general partnership: the member has an 'interest in a business', provided the business is wholly or mainly trading. HMRC confirmed this approach in its guidance (IHTM25031) and it has been applied consistently. The result is that solicitors, accountants, architects, engineers, and other professional services LLP members who have been members for at least 2 years can claim 100% BPR on the death value of their LLP interest.
What is the 'wholly or mainly' trading test for LLP BPR?
Under s105(3) IHTA 1984, BPR is denied where the business 'consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investments'. This is the wholly-or-mainly test. For an LLP to qualify for BPR, its business must be wholly or mainly trading — investment activities must be incidental. 'Wholly or mainly' means more than 50% (by reference to assets, turnover, and activities — the courts have looked at all the circumstances). A professional services LLP with a small cash reserve and some surplus assets will generally pass the test. An LLP that primarily holds rental property will fail. For mixed LLPs (part trading, part investment), careful analysis is required — HMRC will look at the proportion of trading activities, the balance sheet split, and the nature of the profits. HMRC guidance at IHTM25031 discusses the application to trading partnerships.
How does the April 2026 BPR cap affect LLP interests?
The Autumn Budget 2024 announced a cap on 100% Business Property Relief: from April 2026, the first £2.5m of qualifying BPR assets attracts 100% relief; above £2.5m, the rate falls to 50% (effective 20% IHT rather than 0%). For LLP members whose interest exceeds £2.5m, the excess is taxed at the reduced 50% BPR rate — so IHT is still due. This cap is per individual per tax year, not per asset class. Planning implications: where a partner's LLP interest exceeds £2.5m, lifetime gifting of the excess to the next generation (subject to the 7-year PET clock), family trusts, or life insurance to cover the residual IHT may all be worth considering. The cap interacts with the APR cap: if a person owns both BPR-qualifying LLP interests and agricultural land, the £2.5m is a combined cap across both reliefs.
Is a salaried member of an LLP entitled to BPR?
The income tax salaried member rules (ITTOIA 2005 s863A-G, introduced 2014) treat certain LLP members as employees for income tax if they meet specified conditions (e.g. they have a salary guarantee, limited profit participation, or no significant capital at risk). For BPR purposes, the relevant question is different: does the member have an 'interest in a business' under s105(1)(a) IHTA 1984? A member who is treated as a salaried member for income tax may still have a genuine capital interest in the LLP — their capital account, goodwill share, and genuine profit participation are relevant. However, a member with no capital at risk, no genuine share in business profits, and no entitlement to the LLP's goodwill or surplus on dissolution may not have an 'interest in a business' at all — they may merely be an employee whose remuneration is labelled as a profit share. In that case, no BPR would be available. The analysis requires examining the LLP agreement and the economic reality of the membership.
What is included in an LLP interest for BPR valuation?
The LLP interest subject to BPR is the member's share of the LLP's business assets — their capital account balance, share of goodwill, and entitlement to the LLP's net assets on dissolution. Excepted assets are carved out (s112 IHTA 1984): cash held in the LLP that is not required for the business (above a reasonable working capital reserve), investments held by the LLP (listed shares, bonds), and any assets used for non-trading purposes. The BPR applies to the qualifying business portion only — not to cash surpluses, investment portfolios, or surplus properties. In practice, for a professional services LLP, most of the capital account value is genuine business goodwill and working capital, which qualifies. For a mixed investment/trading LLP, the non-qualifying assets must be identified and excluded before BPR is claimed on the remainder.
How does an LLP interest differ from a limited partnership interest for IHT?
General and LLP interests (where the member is genuinely active in the business) qualify for BPR under s105(1)(a) as interests in a business. Limited partnership interests are different: a limited partner contributes capital but has no role in management and cannot bind the firm — they are passive investors. HMRC typically argues that a limited partner's interest is a 'business asset' only to the extent the LP is genuinely trading, but the member's passive role may resemble a mere investor rather than a business operator. In practice, HMRC will scrutinise limited partnership interests more closely than LLP or general partnership interests for BPR. Some venture capital limited partnership interests and infrastructure LP interests may fail the BPR test entirely — the LP may be regarded as holding investments rather than carrying on a trade.
Plan Your LLP Interest in Your Will
A professional will ensures your LLP interest, BPR assets, and business succession arrangements are properly coordinated. Don't leave your business partners or family exposed to an avoidable IHT liability.
View Will Kits from £39.99