HMRC internal manual

Inheritance Tax Manual

IHTM25311 - Business relief: Replacement property: Conditions

The replacement property will qualify for business relief if

  • it replaced other business property
  • the original and replacement property were each owned for periods totalling two out of the five years prior to the date of the transfer
  • each item of property was relevant business property (apart from the ownership test) at the time of replacement and the date of transfer

We take ‘replacement’ to mean there has to be some tangible connection or link between the pre-existing property and the later property.

For example, if an individual sells a qualifying business interest in A and buys another business interest in B, he or she would be said to have replaced A with B. If however, s/he spent the proceeds on other things, and later borrows money to buy the interest in B, we would not regard that as a replacement. Neither would we regard S.107(1) as applying if the individual gave away the interest in A for no consideration, and later acquired the interest in B from other funds.