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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers - additional conditions: Remaining business property

The second condition is applied immediately before the death, IHTA84/S113A(3)(b) or, if the transferee dies in the transferor’s lifetime, immediately before the death of the transferee, IHTA84/S113A(4).

The test in this condition refers to the asset which was relevant business property (IHTM25141) in relation to the lifetime transfer (the original property). The original property has to qualify as relevant business property immediately before the transferor’s death (or the transferee’s death if it was earlier).

You do not need to consider how long the transferee owned the asset as the 2-year ownership rule (IHTM25301) does not apply to this test.

Example

In 2011 Penelope gives her daughter Sarah her sole trader business. The business was relevant business property at the date of the gift. Penelope dies in 2013 and Sarah is still alive at her death.

You should consider if the business still qualified as relevant business property immediately before Penelope died in 2013.

It is not necessary for the asset to come within the same category of IHTA84/S105(1) relevant business property on both dates.  This is illustrated by the following example:

Example

In 2008 Ahmed gave Irfan an interest in the family partnership. The transfer was of IHTA84/S105(1)(a) property. At the time of the transfer the asset was relevant business property.  In 2010 the partnership incorporated and became a limited company, with Irfan’s interest now being represented by unquoted shares.

On Ahmed’s death in 2012, Irfan still holds the shares. They are still unquoted. So immediately before Ahmed’s death, the shares are IHTA84/S105(1)(bb) property.

The fact that they come within a different paragraph of IHTA84/S105(1) does not matter. It is sufficient that they are relevant business property immediately before Ahmed’s death. The potentially exempt transfer (PET) (IHTM04057) by Ahmed qualifies for business relief as IHTA84/S105(1)(a) property.

The second condition does not apply to certain types of transfers (IHTM25366).