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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers - additional conditions: The two conditions

Two conditions have to be satisfied for business relief to be available in calculating the (additional) tax chargeable by reason of the transferor’s death within seven years of the transfer. Both conditions refer to the asset which was relevant business property (IHTM25141) in relation to the lifetime transfer (IHTM14000) (the original property). The original property must

  • have been owned by the transferee (IHTM25364) throughout the period between the date of the transfer and the death of the transferor, IHTA84/S113A (3) (a) (or earlier death of the transferee, IHTA84/S113A (4)),
  • still be relevant business property (IHTM25365) immediately before the death of the transferor (or earlier death of the transferee), IHTA84/S113A (3) (b).

Where the value transferred is greater than the value of the asset transferred, relief is available for the whole of the loss to the transferor’s estate (IHTM04054), including the depreciation in the value of assets retained by the transferor, if the additional conditions are satisfied in relation to the ‘original property’.

Because the additional conditions operate by reference to the original asset, relief would be lost unless the transferee had retained the gifted asset and that asset was still relevant business property at the date of death. To alleviate this, IHTA84/S113B provides for the additional conditions to be satisfied where the transferee has replaced (IHTM25369) the gifted property with other business assets.                                                              

Where the relevant business property has been sold within 7 years of death and has not been replaced by other qualifying assets, tax will be payable where the value transferred exceeds the available nil-rate band. Those liable for the tax can, in some circumstances, include the purchaser of the relevant business property (IHTM30125).