Inheritance Tax: General Approach to IHT Valuation Requests
In respect of occasions of charge on or after 6 April 1996 (including potentially exempt transfers made before that date which come into charge as a result of a death on or after that date), Business Relief will be available at 100% in many cases.
Once you are satisfied that all conditions for 100% relief are met, you can conclude the valuation request on that basis and there will be no need to agree a value for the shares in question. Thus it will be possible to dispose of many valuation requests very quickly. You should, however, take care to ensure that all the conditions for relief are satisfied. Full details are given in Chapter 111 of this manual SVM111000 - but the following points in particular should be borne in mind.
- BR only applies to trading companies. It does not apply to investment companies. (see Chapter 111 of this manual SVM111140).
- BR generally applies to unquoted shares in companies. Securities - for example debentures or loan notes - can qualify for BR (under s.105(1)(b) IHTA) but only if they gave the transferor control or contributed to his control immediately before the transfer. It is very unusual for securities to confer votes on the holder and thus to contribute to control - so it is most unlikely that you will come across securities which do qualify for BR. If you think BR may be due on any securities, you should consult your Team Leader before coming to a final decision.
- Usually, the two-year old ownership test is straightforward. If, however, the two-year ownership test is not satisfied, but it is claimed that it should be treated as satisfied under ss.107, 108 or 109 IHTA, you should give the claim careful consideration and take advice as necessary. Detailed instructions are given at Chapter 111 of this manual SVM111060 - SVM111080. When considering the replacement provisions of s.107 IHTA, you should take care to check that the original (replaced) property would have qualified for BR if it had been the subject of a transfer.
For example X has £50,000 of loan notes with an unquoted company. The loan notes do not confer any rights other than that they are to be repaid at a certain date. Within two years of his death, X’s loan notes are cancelled and replaced by 50,000 £1 Ordinary Shares in the company. X’s 50,000 shares do not qualify for BR on the death. The two-year ownership test is not satisfied, nor are the provisions of s.107 because the loan notes would not have qualified for BR if they had been the subject of a transfer immediately before the shares were issued.
The usual instance where s.107 does apply is where, within two years of the transfer, unquoted shares are issued to a transferor in place of a sole trader business or interest in a partnership (trading not investment) or in place of other shares in an unquoted trading company.
- If the business of the company has both trading and investment elements or has a large cash sum not obviously required for business purposes, you should follow the instructions at Chapter 111 of this manual SVM111220 onwards.
- Even if BR is not available, you may still be able to conclude the matter quickly if you are able to agree that the taxable value of the shares (or the value transferred for lifetime transfers) is not great enough to cause the taxable limit (‘threshold’) to be exceeded. If you are satisfied that this is the case, you can report the position to the IHT caseworker on form Val 50 without agreeing a value. You should inform the taxpayer/agents of your conclusion and confirm that this does not imply that a value has been agreed. (See this chapter SVM108110 to SVM108130 for more detailed instructions.)
In IHT death cases, even though shares may qualify for 100% BR, you should be aware that sums due to the deceased from the company by way of loan account, undrawn remuneration, unpaid dividends and so on will not qualify for business relief.
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