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HMRC internal manual

Inheritance Tax Manual

Business relief: Replacement property: Limitation of relief

When the replacement property (IHTM25311) provisions apply, IHTA84/S107 (2) restricts business relief by providing that the relief shall not exceed what it would have been had the replacement or any one or more of the replacements not been made. For this purpose a replacement resulting from the formation, alteration or dissolution of a partnership, or from the acquisition of a business by a company controlled by the former owner of the business, is to be disregarded, IHTA84/S107 (3).

IHTA84/S107 (2) is an anti-avoidance provision and its purpose is to prevent a person who has qualified for relief from purchasing a much more expensive property shortly before death or making a transfer.

Your approach to IHTA84/S107 (2) should be practical. If there is any indication that the deceased’s/transferor’s resources were being rearranged into considerably more extensive business property to obtain increased relief on the death/transfer, you should refer the case to Technical. Otherwise you should adopt a reasonable approach aimed at quantifying and agreeing the restricted relief in a practical way. The approach you should adopt is illustrated by two examples: one which deals with the equivalent provisions for replacement property in an agricultural relief case (IHTM24113), and another which involves agricultural and business relief (IHTM24114).