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HMRC internal manual

Inheritance Tax Manual

Business relief: Investment businesses: Property based businesses

Property based businesses may be trading, dealing in land and buildings, making or holding investments, or be a combination of these.

The rule excluding investment businesses (IHTM25261) from business relief applies to businesses consisting wholly or mainly of dealing in land or buildings. However this restriction does not deny relief for a business, an interest in a business or shares in a company which, at the time of the transfer, is carrying on a genuine building and construction business holding a number of properties (e.g. houses or plots awaiting development) as stock in trade.

The focus is on the nature of the business at the time of the transfer. So, for example, a business which started as a house builder but which, at the time of the transfer, had not built any houses in recent years and there is, for example, no evidence of reinvestment in a new development and it was selling off its land-bank would not quality for relief.

Some businesses will be hybrids in both property development and the holding of let properties. You should use the ‘wholly or mainly’ test (IHTM25265) to evaluate whether these businesses are investment businesses.