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HMRC internal manual

Inheritance Tax Manual

Excepted assets: Part business use of land or buildings

The rule excluding excepted assets (IHTM25351) from business relief is relaxed in the case of land or a building where

  • part of the land or building is used exclusively for the purposes of the business; but
  • the whole of the land or building would otherwise have to be treated as an excepted asset because it was not used wholly or mainly for the purposes of the business (or would be excluded from relief under the rules relating to land and buildings, machinery and plant (IHTM25223)).

In these circumstances the part used exclusively for the purposes of the business and the rest of the property are treated as separate assets, and the value of the land or building as a whole is apportioned between the two parts, IHTA84/S112(4).
This will be the case where part of a land or building included in a business interest (IHTM25152) is used exclusively for business purposes, but the business use does not amount to “mainly” under IHTA84/S112(2)(a), because the part used for business purposes is too small in relation to the property as a whole. The effect of IHTA84/S112 (4) is that the part used exclusively for business purposes is treated as a separate asset. So it is “used wholly……..for the purposes of the business” under IHTA84/S112 (2) (a) and, provided the other conditions of IHTA84/S112 are met, will not be an excepted asset.


Pauline owns a three-storey building and uses the ground floor as a shop.

Victor is a dentist who runs the practice from his home.  The large house is mainly his residence but three rooms on the ground floor are used for surgery, office and waiting room.

In each case the ground floor, or the three rooms, are used exclusively for business purposes.

You should ask the Valuation Office (IHTM23002) to provide a separate opinion of value of the part of the land or building which is not used for business purposes. The basis of valuation is a just or fair proportion of the value of the whole land or building (assuming that is greater than the value the part would have if valued separately).

This treatment as two or more separate assets has implications where a mortgage is secured on the property. Unless there is evidence to show that the mortgage is secured on a particular part of the building it should be apportioned rateably between the relevant parts.

And where an asset subject to a mortgage is divided into two quite distinct and separate parts, one of which is used for business purposes and one not, each will be treated as a separate “building” for the purposes of IHTA84/S112 (4) and unless shown to be an inappropriate approach the mortgage will be apportioned.

This instruction can be applied to property within either IHTA84/S105 (1) (a), (d) or (e).