Statement of Practice 12 (1980)
Published 13 October 1980
© Crown copyright 1980
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The Commissioners for HM Revenue and Customs (HMRC) understand that it is sometimes the practice for partners or shareholder directors of companies to enter into an agreement (known as a ‘Buy and Sell’ Agreement) whereby, in the event of the death before retirement of one of them, the deceased’s personal representatives are obliged to sell and the survivors are obliged to purchase the deceased’s business interests or shares, funds for the purchase being frequently provided by means of appropriate life assurance policies.
In the Commissioners for HMRC’s view such an agreement, requiring as it does a sale and purchase and not merely conferring an option to sell or buy, is a binding contract for sale within Inheritance Tax Act (IHTA) 1984 section 113. As a result the Inheritance Tax business property relief will not be due on the business interest or shares. (IHTA 1984 section 113 provides that where any property would be relevant business property for the purpose of business property relief in relation to a transfer of value but a binding contract for its sale has been entered into at the time of the transfer, it is not relevant business property in relation to that transfer.)