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HMRC internal manual

Inheritance Tax Manual

Excepted assets: Introduction

Business relief gives a substantial relief from tax. The function of IHTA84/S112 is to prevent taxpayers from getting the benefit of business relief for private assets by confining the relief to assets needed for the business. IHTA84/S112 provides two sets of rules for achieving this. 

  • one set of rules (IHTM25223) in IHTA84/S112(3) which apply to land and buildings, machinery and plant (IHTM25222)
  • another set of rules in IHTA84/S112(1) which apply to all other categories of relevant business property (IHTM25141)

Under IHTA84/S112(1) the value of any ‘excepted assets’ is to be left out of account for the purposes of business relief. In order not to be ‘excepted’ an asset must pass two tests:

  • It must have been used wholly or mainly for the purposes of the business in question throughout the two years, or such lesser period as the transferor owned the asset (or a corresponding interest in the asset in the case of an interest in a business), immediately preceding the transfer of value, IHTA84/S112(2)(a) and IHTA84/S112(5). You should note that this test is not satisfied if the asset was used for the purposes of a previous business during the period in question.

  • Also, it must be required at the time of the transfer of value for future use (IHTM25352) for the purposes of the business in question.