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HMRC internal manual

Inheritance Tax Manual

Business relief: Outline of business relief

Relief is available for certain types of business or business property included in a lifetime transfer (IHTM14000) or the deceased’s death estate.

  • The relief is available on a deemed transfer of value as defined in IHTA84/S3 (4).
  • The relief is available for the deceased’s relevant business property (IHTM25141) anywhere in the world, and
  • It applies to settled property included in the death estate.
  • The relief also applies to the discretionary trust regime.  A transfer of value includes an occasion on which tax is chargeable on discretionary trusts, IHTA84/S103 (1).
  • In absence of any other special provisions, the relief is not available on other occasions of charge, such as, for example, when conditionally exempt property is sold.

Business relief is due to the extent that the value transferred by a transfer of value is attributable to relevant business property.  The relief takes the form of a percentage reduction in the value attributable to the relevant business property. The percentage reduction is deducted from the value transferred by the transfer of value.  This means the relief is calculated

  • before the deduction of exemptions (IHTM11000)
  • before any grossing up (IHTM26001)
  • before any deduction is allowed under IHTA84/S165 for Income or Capital Gains Tax borne by the donee.

For transfers after 10 March 1992 the percentage reduction is 50 or 100 depending on the type of business property transferred.

Business relief does not reduce the value of the property concerned for Inheritance Tax purposes. When you quantify the amount of exemptions, such as spouse or civil partner (IHTM11032) exemption, in a case where business relief is available, IHTA84/S39A applies.

Also a reduction is not made in the ‘historic’ value of property taken into account in determining the rate of tax chargeable in the relevant property trust regime.

Because of IHTA84/S103(1)(a) in the unlikely event of there being a partially exempt occasion of charge in the discretionary trust regime, the exemption is deducted before business relief is allowed.