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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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Inheritance Tax: Instalments

Instalment Option

In many cases, shares will qualify for 100% BR so that the question of the availability of instalments is irrelevant. In all cases where 100% BR is not available, the availability of the instalment option and interest relief should be considered and Form Val 50 should be completed as appropriate unless a case is clearly sub-threshold.

The instalment option applies to any shares or securities which contributed to control, determined as for business relief, immediately before the chargeable transfer (s.228 (1)(a) IHTA 1984).

In other cases the option is available in respect of shares (but not securities) where:

  • the value transferred, after any business relief, exceeds £20,000 and
  • the shares represented not less than 10% of the nominal value of the company’s total issued share capital or, in the case of ordinary shares, 10% of the nominal value of the issued ordinary share capital (s.228(1)(d) and (3)).

In the case of relevant property settlements (see this chapter at SVM108050), references to the ‘value transferred’ include references to the amount on which tax is then chargeable under the tax claim (s.2(3) IHTA 1984).

In the case of a lifetime transfer the £20,000 value in the first condition refers to the value transferred by the chargeable transfer, in other words, the loss to the transferor’s estate, and not to the value of the gifted shares in isolation - see Chapter 30 of the Inheritance Tax Manual IHTM30256.

Valuers should bear in mind that even if tax could not be paid by instalments under the criteria which SAV can consider (s.228(1)(a) and (d) and s.228(3) IHTA), instalments may still be available under s.228(1)(b) and s.228(2) IHTA, but these are matters for the IHT caseworker to consider. Basically, s.228(2) means that if the value of the shares added to the value of other potential instalment property (for example houses and land) in an estate exceeds 20% of the taxable value of the estate, tax may be paid by instalments on the shares, however small their value. You, of course, are only expected to confirm the point on the basis of all the tests which you can consider.

The additional interest-free relief is available where the company’s business is a ‘qualifying business’ determined as for business relief (s.234). Where the instalment option applies, therefore, SAV should also advise whether the ‘qualifying business’ test is satisfied. Almost always where we are concerned with post-6/4/96 occasions of charge, and 100% BR is not available, any instalments that are due will be without interest relief. For post 6/4/96 occasions of charge, instalments with interest relief would only apply if for example we were considering the value of shares in a trading company which the transferor had not held for 2 years (therefore, no BR but interest free instalments could still apply). If, say, some part of the value of the shares did not qualify for BR because an asset was left out of account under s.112 but the company was essentially a trading company, any instalments on the chargeable value of the shares would be with interest relief.

The IHT caseworker should be advised immediately of any case where the instalment option has been claimed but is clearly inappropriate.

Such notification should never be left until the valuation of the shares has been agreed, because interest will be running on the outstanding tax.

Sale of Instalment Option Property

Where it is known that the taxpayer has elected to pay by instalments and it comes to light that the shares have been sold for money or partly for money and partly for shares, the IHT caseworker should be notified immediately.

The instalment facility is not lost where:

  1. unquoted shares or securities become quoted on a recognised stock exchange or listed on the Alternative Investment Market (AIM);
  2. unquoted shares or securities are exchanged for other shares or securities, whether quoted or not, (a situation which often arises on a take-over or merger);
  3. a distribution in cash is made to shareholders on a liquidation, which is not a sale but the winding-up of a company.

Where in the situation at (b) the shares received in exchange are subsequently sold, the instalment facility comes to an end on the sale.

  Additional Guidance: SVM150000