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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: transfers by close companies: introduction

Since, in general, Inheritance Tax is chargeable on transfers made by individuals, without specific legislation transfers through companies would not be subject to Inheritance Tax.

The provisions in IHTA84/S94 through to IHTA84/S102 lift the corporate veil and

  • attribute to the participators in a close company a transfer of value made by the company and
  • treat alterations in capital or rights as a disposition made by the participators.

IHTA84/S102 (1) adopts the definition of a close company for the purposes of the Corporation Tax Acts. In general terms, it is a UK registered company with 5 or fewer participants/directors.

‘Particpator’ is also defined in IHTA84/S102(1) by reference to section 454 Corporation Tax Act 2010. In broad terms ‘particpator’ means a shareholder, someone with voting rights in the company, or someone entitled to share in the distributions made by the company.