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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
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Lifetime transfers: specific lifetime reliefs: shares and securities: transactions of close companies

IHTA/S136 applies where the transferred asset consists of shares in a close company (IHTM14851) and between the date of transfer and the date of death or sale there was a ‘relevant transaction’, that is

  • transfer of value by the company, or
  • an alteration in the company’s unquoted share or loan capital or in the rights attaching the unquoted shares or debentures of the company

but the transaction is one which does not give rise to an adjustment for capital receipts (IHTM14642), payment of calls (IHTM14643) or changes in shareholdings (IHTM14644).

This section of the Act operates by increasing the market value of the transferred asset at the date of death or sale by the difference between

  • the market value at the time of the transfer, and
  • what that value would have been if the ‘relevant transaction’ had occurred before rather than after the transfer.

The basic relief under IHTA/S136(2) assumes that the ‘relevant transaction’ would have had the effect of reducing the value of the transferred asset. Exceptionally, the ‘relevant transaction’ might have had the effect of increasing the value of that asset at the time of the transfer. In those circumstances IHTA/S136(4) means that you should reduce the market value at the date of death or sale to what it would have been if the ‘relevant transaction’ had not occurred.

IHTA/S136(3) provides for the IHTA/S136(2) increase to be adjusted if the ‘relevant transaction’ is a transfer of value by the company which increases the estate of the transferor or spouse/civil partner (IHTM11032) of the transferor.

Similar provisions are made for transfers of interests in land by IHTA/S137. Examples showing how these provisions apply are included at IHTM14662 and IHTM14663.