SVM108220 | Inheritance Tax: Dispositions not intended to confer gratuitous benefit - section 10 IHTA 1984

Section 10 IHTA 1984 provides that a disposition is not a transfer of value if it is shown that it was not intended, and was not made in a transaction intended, to confer any gratuitous benefit on any person and either (a) it was made in an arm's length transaction between unconnected persons or (b) it was the kind of disposition one would expect to find in an arm's length transaction between unconnected parties. Section 10(2) IHTA 1984 goes on to provide that, for the exemption to apply to a sale of unquoted shares or debentures, it must be shown that the sale was at a price freely negotiated at the time of the sale or at such a price as is consistent with free negotiations.

Section 10 IHTA 1984 prevents ordinary commercial bargains from being treated as transfers of value. For example, one director sells a number of shares to another, both having taken professional advice. Even in transactions between connected persons, this provision may apply. However, the onus is on the parties to show that the section 10 IHTA 1984 conditions are met.

The related property provisions in section 161 IHTA 1984 are not in point when considering whether a disposition falls within section 10 IHTA 1984. For example, when spouses or civil partners each have a minority interest but jointly have control, a disposition by either spouse or civil partner must be viewed as one made by a non-controlling minority shareholder. However, valuers should bear in mind that when considering the application of section 10 IHTA 1984 they are considering the circumstances of an actual, and not hypothetical, sale. Therefore, notwithstanding that the related property provisions do not apply it is appropriate to consider whether a spouse or civil partner would have disposed of shares at a minority price when they had control or joint control with the other spouse or civil partner.

Additional Guidance: SVM150000