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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Business interests: Meaning of “business”

The IHTA 1984 does not define a ‘business’ for the purposes of business relief. However, there is some guidance in:

  • IHTA84/S110, which says that the value of a business is arrived at on an assets less liabilities basis and
  • IHTA84/S103(3), which contains specific inclusions and exclusions.

These provisions apply to all types of relevant business property (IHTM25141) but you will see them most frequently in connection with property consisting of a business or a business interest (IHTM25151).

IHTA84/S110 states that:

  1. the value of a business or an interest in a business is its net value;
  2. the value of a business is
  • the value of the assets used in the business (including goodwill)
  • less the aggregate amount of any liabilities incurred for the purposes of the business;

and

    3. the only assets and liabilities relevant to the value of an interest in a business are those relevant under (b) above to the entire business.

So, for example

  • an interest by way of loan, such as a partnership loan account, is a liability of the business and so is not part of its net value under IHTA84/S110 (b)
  • a partner’s Income Tax liability in respect of his share of the partnership profits is not a liability incurred for the purposes of the business, so it should not be deducted in calculating the net value of the partnership interest for the purposes of business relief.

Under IHTA84/S103 (3) ‘business’

  • includes a business carried on in the exercise of a profession or vocation
  • excludes a business not being carried on for gain.

There are also other provisions (IHTM25261) excluding certain types of businesses from relief.