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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: Replacement property: shares or securities

IHTA84/S124A (6) applies where the shares in an agricultural company within IHTA84/S122 (1) which are owned by the transferee (IHTM24179) immediately before the death of the transferor (or the earlier death of the transferee) represent the original property (IHTM24175) received from the transferor.

The circumstances in which this subsection will apply are where the shares

  • can be identified with the original property under the provisions of CGTA79/S77 to 86 because, for example, they were received through reorganisation or reduction of the share capital, or as the result of a take-over bid, IHTA84/S124A (6)(a), or
  • were issued to the transferee in consideration of the transfer of agricultural property (IHTM24030) consisting of the original property, IHTA84/S124A (6)(b). For example, this subsection would apply in the situation where the original agricultural property becomes incorporated into a farming company and the agricultural land is transferred to the company in return for shares.

Where either of these conditions apply, the transferee’s period of ownership of the original property is treated as including his period of ownership of the shares for transfers of value and other events occurring on or after 17 March 1987.

The original legislation provided that the replacement shares were to be treated as the original property, but where IHTA84/S124A (6)(b) was in point this treatment subjected the shares to the condition at S124A (3)(c) - ownership of the agricultural property by the company throughout the period between the transfer and the death. In the S124A (6) situation, that condition could not be satisfied. Amending legislation was required so that the shares received are no longer treated as the original property.

However, this means that the tests at IHTA84/S124A (3)(a) and (b) have to be satisfied in respect of the original property even though it has become owned by the company. That is, the original property must still be owned by the company at the date of death and must not be under a binding contract for sale. It must be agricultural property immediately before the death and have been occupied for the purposes of agriculture throughout the relevant period.

The ownership test at IHTA84/S124A (3)(a) will be satisfied by treating the transferor’s ownership of the original property as including his period of ownership of the shares.

You should refer any case where the taxpayer claims that shares come within IHTA84/S124A (6)(a) or (b) to SAV who will advise whether the shares come within this section.

The provisions at IHTA84/S124B are of no application where the original property consists of shares or securities, which are sold and subsequently replaced. Shares in agricultural companies within IHTA84/S122 cannot qualify as replacement property as they will not constitute agricultural property within the meaning of IHTA84/S124B (3)(d).

However, where shares are acquired in circumstances within IHTA84/S124A (6), for example, where the original agricultural property is sold and further agricultural property is purchased, and is subsequently transferred to a company in return for shares, ownership of the shares may count towards the period of ownership of the original property. You should seek advice on any such case.

If the transfer was a PET (IHTM04057) and the replacement property does not qualify for agricultural relief, you should consider whether business relief may apply as an alternative. (IHTM25141)