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HMRC internal manual

Lloyd's Manual

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Inheritance tax: Names: business property relief: interavailability

Where a Name has made their Funds at Lloyd’s (FAL) interavailable (LLM6020) to provide security for both open year unlimited businessand for future business through a corporate vehicle, business property relief will continue to be available during the period of interavailability, subject to the usualconditions.

If a Name had made their FAL interavailable during the conversion process from unlimited to limited underwriting, business relief is available at 100% on the deposits during the period of interavailability, subject to the usual conditions.

Business relief was initially extended to the FAL used to support the underwriting activities of a Nameco alone but this concession was withdrawn. A Lloyd’s Market Bulletin Y2840 to this effect was issued on 23 July 2002.

Representations made by Lloyd’s led to an agreement to limit this restriction. A Lloyd’s Market Bulletin Y3161 was issued on 14 October 2003. Subsequently HMRC agreed to review the position in 2004-05. Following this review, a further Bulletin Y3822 issued on 31 May 2006 included the following summary of the finally agreed new arrangements.

Deaths on or before 31 December 2006

Third party FAL (including assets backing a bank guarantee)

For deaths on or before 31 December, business relief will continue to be given on third party FAL assets, including amounts guaranteed under bank guarantees. However, the relief will be capped at the level of FAL needed for 2002 and will also be subject to the overriding constraint that the funds eligible for relief cannot be disproportionate to the level of underwriting as a whole.

Interavailable FAL

For deaths on or before 31 December, full business relief will be given on interavailable FAL up to the level needed for 2003.

Deaths on or after 1 January 2007

HMRC will deal with deaths after the end of 2006 as follows.

Third party FAL (including assets backing a bank guarantee)

As set out in the Bulletin of 23 July 2002, no business relief will be given, but the valuation of the assets for IHT purposes must take into account the negative value of the FAL arrangement to the estate.

Interavailable FAL

Business relief will be given on interavailable FAL assets, including amounts guaranteed under bank guarantees, to the extent that the interavailable FAL is not disproportionateto the individual’s unlimited liability underwriting.

To the extent that business relief is not given (for example, if the FAL is technically interavailable but there is no exposure to unlimited liability underwriting), the valuation of the assets for IHT purposes must take into account the negative value of the FAL arrangement to the estate.

A further Lloyd’s Market Bulletin Y3204 issued on 8 December 2003 provides examples of how the new arrangements will work in practice.