IF YOU run a family business which you have developed over a lifetime, you can be forgiven for feeling resentful if the taxman tries to take more than his due when you die.

One of the most valuable Inheritance Tax (IHT) reliefs available to individuals is business property relief which, at its best, allows you to pass personal business assets completely free of IHT on to the next generation.

The policy behind this is that successive governments have wanted to encourage entrepreneurs to build up home-grown businesses without the fear of losing a chunk to the taxman.

However, it is not enough simply to establish that your business qualifies and leave it there. To reap maximum benefit it is sensible to look at your borrowing strategy as well.

If assets qualifying for business property relief are burdened with debt, there will be less of a benefit to be gained. Simply looking at which assets are being used to secure debts, and reallocating the debt to assets which don’t qualify for the relief, could save you hundreds of thousands of pounds.

Take the example of Mr A, who has built up a successful trading business. One of the main assets of the business is a series of shop premises with a combined value of �5million. Mr A also has a home which is worth about �1.5m.

He has a mortgage over two of the retail shops worth �1m. If Mr A were to die tomorrow, the value of the mortgage would mean that business property relief would be reduced to 100% of �4m, rather than �5m.

If Mr A had reorganised his borrowing so that the mortgage was secured over his home (which does not qualify for relief), he could potentially have made an IHT saving of �295,000.

What about loans from family members to the family business? A recent case involved two generations of a family who were involved in a successful antiques business. An aged member of the family owned shares in the business, which were set to gain 100% business property relief when she died. However, she had also made a personal loan to the company which would not have benefited from the relief on her death.

Just a few days before she died, the family took some timely legal advice and she took up a rights issue, under which she was allocated further shares in the company in satisfaction of her loan account. As a result, the shares were deemed to be part of her original shareholding and were eligible for business property relief.

This shows it is never too early, or too late, to do some Inheritance Tax planning.

: : Robert Chalmers is a partner and joint chairman of law firm Ashton KCJ.