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HMRC internal manual

Inheritance Tax Manual

Meaning of estate for s.142: partnerships

The application of IHTA84/S142 to partnerships is not straightforward. The following aspects have caused concern

  • the relationships between partners are essentially contractual. That is fundamentally different from say, joint property, which is the main class of property falling within the ‘or otherwise’ provision in IHTA84/S142
  • the taxpayers have sought to use IHTA84/S142 to re-jig that contractual relationship, even back to a date preceding the relevant death, and
  • the taxpayers will normally have no right to vary the terms of a partnership agreement unilaterally.

The approach you should adopt is you can accept as within IHTA84/S142 variations redirecting beneficial entitlement to partnership interests

  • as reflected in the free estate, and
  • as passing without payment to surviving partners under the terms of the partnership agreement.

You should reject as not within IHTA84/S142 any variation

  • which attempts to change the nature or value of the property at the date of death, or
  • by which surviving partners who receive the deceased’s partnership share under the terms of the partnership agreement but subject to paying its full value to the executors seek to redirect the partnership share.

Where the surviving partners succeed subject to paying to the executors a sum less than the full value

  • you can accept a variation by the beneficiaries of that sum under the Will/Intestacy, but
  • you should refer any case containing an attempt by the surviving partners to use IHTA84/S142 to redirect their entitlement to Technical.

In many cases the availability of business relief at 100% will make close consideration of the value of the deceased’s partnership interest unnecessary. In others you may be offered the full open market value of a partnership share, though the provisions of the partnership agreement, if considered, might cause you difficulty. You should not let concern over the strict application of IHTA84/S142 to partnerships undermine a broad approach to the deceased’s partnership interest which would otherwise be appropriate on the facts of the case.