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HMRC internal manual

Partnership Manual

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HM Revenue & Customs
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Indirect, capital and transfer taxes and other tax obligations: VAT and p Inheritance Tax (IHT): Inheritance Tax (IHT): Transfers of partnership assets

IHT is charged on the value transferred by a chargeable transfer. If a partner gifts all or part of his share of the partnership, the partner will have made a transfer of value. The gift could be made to another existing partner, for example.

Under IHTA 1984/S10, however, a disposition not intended to confer gratuitous benefit on another person is not a transfer of value if:

  • it is made in a transaction at arm’s length between unconnected persons, or
  • it might be expected to be made in a transaction at arm’s length between unconnected persons.

As such, there must be a gift intended to confer gratuitous benefit on another person for the transfer to be within the scope of IHT. See IHTM04161 onwards for general guidance on this.

A transfer of value may also occur on death of a partner. In this scenario, the transfer is deemed (by IHTA 1984/S4(1)) rather than actual, so IHTA 1984/S10 cannot apply (see IHTM04151). Provision for what will happen to a deceased partner’s interest in the partnership is usually made in the partnership agreement. For example, the partnership deed may stipulate that the deceased’s executors must sell the interest to the surviving partners. Alternatively, the agreement may provide for the surviving partners to have an option to buy the interest, often matched by the executors having an option to require to surviving partners to acquire the interest.