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HMRC internal manual

Inheritance Tax Manual

Land and buildings, machinery and plant: Transferor's interest in the occupying company or partnership

Under IHTA84/S105 (6) the land, etc, specified in IHTA84/S105 (1)(d) does not qualify for relief unless the transferor’s interest in the partnership is, or shares or securities of the company are, relevant business property in relation to the transfer.

For example, a landlord of a factory cannot get the relief by purchasing a controlling interest in the tenant company or by becoming a partner in the tenant firm shortly before his death. The two years minimum ownership requirement in IHTA84/S106 prevents the purchased interests being relevant business property.

Control of the company using the asset is also important.

The importance of the deceased having control of an occupying company is illustrated by Walding v IRC [1996] STC 13.  Mrs Walding’s estate included 45 shares in Leeways Packaging Services Ltd and factory units occupied by the company.  The executors claimed business relief for the factory units under IHTA84/S105 (1)(d).

The availability of relief depended on whether the deceased had control of the company as required by IHTA84/S105 (1)(d).  This turned on the status of 24 shares in the name of her four year old grandson.

For the purposes of argument, the Revenue accepted that he did not have the personal capacity necessary to exercise his rights of voting.  (This concession by the Revenue was not general and certainly does not extend to one who is near the age of majority.)

The executors argued that, for the purposes of IHTA84/S269 (1), it was necessary to have regard to the personal capacity (or incapacity) of the registered shareholder.

Knox J rejected this argument.  Implicit in IHTA84/S269 (1) are two categories of votes that may exist:

  • votes on questions which do not affect the company as a whole, and
  • voting rights on all questions affecting the company.

It is the latter category which counts for the purposes of IHTA84/S269.  In the judge’s view, the reference to capability in IHTA84/S269 (1) is to identify there is a particular category of voting rights capable of being exercised rather than the personal capacity of the registered shareholder.

He also considered the practical consequences of the conflicting arguments.  The executors’ arguments would cause practical problems. But the judge’s interpretation gives all taxpayers an equal right to relief regardless of any mental or physical capacity or incapacity that they might have.

Accordingly, the factory units occupied by the company did not qualify for business relief.

Shares and Assets Valuation (SAV) will advise whether the transferor had control of a company at the relevant time.