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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: transfer of value by a close company

When a close company makes a transfer of value, (IHTM04024) we look through the company and charge tax as if each individual participator has made a transfer of the amount apportioned to them by reference to their rights and interests in the company immediately before the transfer, IHTA84/S94 to IHTA84/S97. The transfer is based upon the net amount apportioned to each participator after taking account of any compensating increase in their estate (IHTM04029) resulting from the transfer. An example is where a company transfers a house to a director for no consideration, or a consideration at less than market value.

Shares and Assets Valuation (SAV) are responsible for all decisions in connection with this legislation and all such cases should be referred there. SAV will report the net amount apportioned to each participator.

Such transfers are deemed transfers of value, (IHTM04025) so they cannot be potentially exempt transfers (IHTM04057) and, in general, the lifetime exemptions are excluded. The one exception here is the annual exemption (IHTM14141) which is specifically applied to these transfers by IHTA/S94 (5). Spouse or civil partner exemption (IHTM11032) is also available to the extent that the estate of the spouse or civil partner of aparticipator is increased.

If a close company makes a contribution to an Employee Benefit Trust (IHTM17000) you should refer the file to Technical in Edinburgh to investigate the possibility of a transfer of value under IHTA84/S13 (1) and (2).