SVM111080 | IHT Business Property Relief: Other circumstances where basic rule relaxed

There are three other circumstances in which the minimum ownership provisions can be met.

These are listed below:

1 - Replacement property - sections 107(1) and (2) IHTA 1984

the shares or securities have replaced other property - which may in turn have replaced other property and so on. The conditions are that:

a. property was owned by the transferor for periods totalling at least 2 years during the 5 years immediately prior to the transfer, and

b. the replaced property, and any earlier replaced property taken into account in the 2 year total at a. above, would (apart from the length of ownership) have qualified for relief on a transfer immediately before (each) replacement. For the restrictions relating to this provision, see this chapter at SVM111090.

‘Replacement’ to mean there has to be some tangible connection or link between the pre-existing property and the later property.

For example, if an individual sells a qualifying business interest (e.g. shares in company A) and buys another business interest (e,g. shares in company B), they would be said to have replaced shares in company A with shares in company B. If however, they spent the proceeds on other things, and later borrows money to buy the shares in company B, it would not regard that as a replacement. Neither would section 107(1) IHTA 1984 as regarded as applying if the individual gave away the shares in company A for no consideration, and later acquired the shares in company B from other funds.

Example

A sold their shareholding (which they had held for many years) in X Ltd, a qualifying unquoted company, on 1 March 2004. With the total proceeds they bought a holding of shares in Y Ltd, another qualifying unquoted company, on 1 February 2005. A died on 1 October 2006. Business relief (BR) is available

2 - Reorganisations - section 107(4) IHTA 1984

the shares were received in exchange for other shares on a capital re-organisation (including a bonus or rights issue), conversion of securities, company reconstruction or amalgamation within the meaning of sections 126 to 136 of the Taxation of Chargeable Gains Act (TCGA) 1992 and the earlier shares and the transferred shares were cumulatively owned by the transferor throughout the 2 years immediately preceding the transfer (section 107(4) IHTA 1984). Before the 1996 Act section 107(4) did not apply to control holdings.

Example

E has held 100 £1 Ordinary shares in a qualifying unquoted company for many years. In 2006, E receives an additional 300 shares in a 3 for 1 bonus issue. On E’s death in 2007, all 400 shares meet the ownership test.

3 - Successive transfers - section 109 IHTA 1984

(for any property) the property was acquired by the transferor or their spouse or civil partner on an earlier transfer of value or directly or indirectly replaced property so acquired, provided

• BR was available on the property on the earlier transfer or would have been available had the transfer not then been exempt, and

• either the earlier or present transfer related to a death (section 109(1) IHTA 1984).

Example

B received a control holding of shares in Z Ltd, a qualifying unquoted company, under the will of C, who died on 1 December 2005. BR was available on that death. On 1 February 2007 B transfers the shares to D. BR is available on the transfer.

Additional Guidance: SVM150000