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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Valuing businesses and partnerships: Fetters

A restriction on a partner’s right to freely dispose of his partnership share is called a ‘Fetter’.

In most cases the open market value of the partnership interest is used for Inheritance Tax. Occasionally however the taxable value may be something other than the open market value.

Articles of Partnership sometimes provide that a deceased partner’s interest in the partnership should pass to the surviving partners at a value less than market value.

These provisions in the Articles restrict the deceased’s ability to dispose of his partnership interest as they wish, for example in their Will.

A lifetime transfer may have occurred if a fetter was created after 26 March 1974. This will reduce the open market value on death, IHTA84/S163(1)(b).

For example Robert took his daughter Chloe into partnership in 2010 and by the Deed of Partnership, the share of a deceased partner was to pass to the survivor without payment.  The value of the transfer on the creation of the fetter is agreed at £100,000. When Robert dies in 2015, the open market value of his partnership interest (we ignore the fetter) is agreed at £180,000.

The taxable value on death is £180,000 less £100,000 = £80,000. However, the lifetime cumulative total of £100,000 means that the aggregate total of cumulative chargeable transfers is the same.

In practice Business Relief will often be available so you will rarely have to consider this point.