Inheritance tax (IHT) is charged at 40 per cent on the value of an individual’s estate on death. It can also be charged on the value of property held in a trust, in certain circumstances, and at 20 per cent on some lifetime gifts.

There are many different reliefs and exemptions from IHT; most people are aware that transfers between spouses or civil partners are generally exempt, both during lifetime and on death, for instance.

From a business perspective, the two main reliefs are Business Property Relief (BPR) for business assets, and Agricultural Property Relief (APR) for agricultural land and buildings.

The most basic requirement is to make a will. If a person dies intestate, the law specifies how their assets are to be dealt with. This affects surviving family members, and where shares or other business assets are held, it can also affect business partners, directors, other shareholders and the business itself.

In addition to making a will, business partners and shareholders may also need to make other arrangements to deal with their partnership interest or shares.

It is necessary to decide what one wishes to happen to the shares or other assets, and prepare a will and any other documents to ensure that these wishes are carried out. The main issues are continuity of the business and the need to ensure that full advantage is taken of BPR and APR.

The most straightforward situation is that of a family-owned business, where it is intended that another family member will take over and run the business. It will normally be sufficient simply for the will to specify to whom the shares or other business assets are to be transferred, and to ensure that BPR is maximised.

Where the individual is in a partnership, or is a shareholder in a company, with other partners or shareholders who are not family members, additional arrangements will need to be made.

The Articles of Association of most private companies include ‘pre-emption rights’, which state that shares must be offered to existing shareholders before a third party. This enables shareholders to acquire shares from the representatives of a deceased shareholder.

A separate Shareholders’ Agreement can set out the exact wishes of all shareholders with regard to matters such as the purchasers of any shares that become available; a formula for arriving at the purchase price; and how a purchase will be funded.

BPR is available for business assets that have been owned for at least two years, and is very valuable - the relief (on a lifetime transfer or on death) is:

• 100 per cent of the value of an unincorporated business; an interest in a partnership; shares in an unquoted company; or securities in an unquoted company controlled by the owner.

• 50 per cent of the value of shares or securities in a quoted company controlled by the owner; or assets used by a company controlled by the owner or by a partnership in which the owner is a partner.

Where possible, wills should be structured so that assets that qualify for BPR are left to non-exempt beneficiaries. Otherwise the relief could be wasted. Similar considerations apply to APR, which is available for agricultural land and buildings. Naturally, there are exceptions to BPR and APR.

The introduction in October 2007 of transferable nil rate bands for spouses and civil partners has reduced the need for sophisticated planning in most cases where the value of joint estates is not more than £624,000.

For more substantial estates, significant IHT savings can be achieved by the careful use of available exemptions, including potentially exempt transfers, and normal expenditure out of income and trusts.

Nicholas Hughes is head of trusts and estate planning at Chiltern Tax Support for Professionals Limited.