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HMRC internal manual

Inheritance Tax Manual

Government securities in foreign ownership: close company with an interest in possession

When dealing with exempt securities comprised in a settlement (IHTM16042) under which a close company has an interest in possession (IHTM04092) in the securities, you should first confirm that the company is a close company. If it is (and such cases are rare) then the conditions concerning residence - and, if relevant, domicile (IHTM04296) and ordinary residence (IHTM04295) -  have to be satisfied by the participators in the company and not by the company itself.

You should refer any case of doubt or difficulty to Technical, especially if the participators are (or include) the trustees of another settlement.

Example

Aethiopica Ltd (a foreign company) is entitled to an interest in possession under a settlement. The 100 issued shares in the company are owned as to 40 each by Mr and Mrs Beterhof and 20 by their son Wilby.

The company is a close company. 80 % of the company’s interest is attributed to Mr and Mrs Beterhof equally and 20 % to Wilby. Any exempt securities held in the settlement will be excluded (or taxed) according to theparticipator’s domicile and residence status and not by reference to the location of Aethiopica Ltd.