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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Employee benefit trusts: disposition by close companies: business property relief

Where IHTA84/S10, S12 or S13 is not met, the contribution by a close company will be a transfer of value as a result of a reduction in the value of the aggregate of the property beneficially owned by the company. This loss to the company’s estate would normally be apportioned between the participators (IHTM42956).

But, relief from Inheritance Tax may be available where:

  • the value transferred is attributable to relevant business property (IHTA84/S105) (IHTM25141), and
  • the two year ownership condition at IHTA84/S106 is satisfied.

The company’s estate is capable of being relevant business property if it is ‘property consisting of a business’, IHTA84/S105(1)(a). However, the availability of business property relief is conditional on whether the transfer meets all the other requirements in IHTA84/S103 onwards. This means, that

  • the business is not an excluded one, for example a company whose main business is making or holding investments, IHTA84/S105(3) (IHTM25261), and
  • the value of the relevant business property transferred is not attributable to any excepted assets, IHTA84/s112 (IHTM25351).

You should investigate whether business relief is available to a transfer by a close company in the normal way; if you have any doubts about whether the company qualifies for relief, Shares and Assets Valuation may be able to give advice.

In light of IHTA84/S015(3), business relief will not apply to a transfer of value made by a close company that is an investment company.

On the other hand, a contribution of cash made to an employee benefit trust by a close company may qualify for relief, provided the cash itself is not an excepted asset.