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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Close companies and settled property: alterations in capital or rights

IHTA84/S100 provides the method of dealing with alterations in a close company’s (IHTM14851) capital or rights where the participator is a trustee and an interest in possession, in whole or part, subsists in the fund.

This special provision is needed because in the case of ‘alterations of capital or rights’ there is no transfer of value as required by IHTA84/S99.

IHTA84/S100 (1) identifies the person with the life interest and S100 (2) spells out what value to tax. This is ‘such part of the individual’s interest shall be treated as coming to an end at the time of the alteration as corresponds to the relevant decrease of the value of the property in which the interest subsists, that is to say the decrease caused by the alteration.’ Essentially it means calculating the value ‘before’ and the value ‘after’ and taxing the difference.

Such a claim, occurring after 16 March 1987, will be a PET (IHTM04057) if it would have been so under a typical IHTA84/S52 (1) claim.