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HMRC internal manual

Shares and Assets Valuation Manual

Inheritance Tax: Dispositions not intended to confer gratuitous benefit - s.10 IHTA 1984

Section 10 IHTA provides that a disposition is not a transfer of value if it is shown that it was not intended, and was not made in a transaction intended, to confer any gratuitous benefit on any person and either (a) it was made in an arm’s length transaction between unconnected persons or (b) it was the kind of disposition one would expect to find in an arm’s length transaction between unconnected parties. Section 10(2) goes on to provide that, for the exemption to apply to a sale of unquoted shares or debentures, it must be shown that the sale was at a price freely negotiated at the time of the sale or at such a price as is consistent with free negotiations.

The s.10 exemption - sometimes called the purchase exemption - prevents ordinary commercial bargains from being treated as transfers of value. For example one director sells a number of shares to another, both having taken professional advice. Even in transactions between connected persons, the exemption may apply, provided the conditions of s.10 are satisfied. However, the onus is on the parties to show that the s.10 conditions are met.

Most transfers you have to consider for IHT purposes are outright gifts. If (unusually) the disposition involved a sale for partial consideration, the IHT caseworker will make an appropriate note on the Val 70 (Lifetime).

The related property provisions in s.161 IHTA 1984 are not in point when considering whether a disposition falls within s.10 IHTA 1984. For example when spouses each have a minority interest but jointly have control, a disposition by either spouse must be viewed as one made by a non-controlling minority shareholder. However, valuers should bear in mind that when considering the application of s.10 IHTA 1984 we are considering the circumstances of an actual, and not hypothetical, sale. Therefore, notwithstanding that the related property provisions do not apply it is appropriate to question whether a spouse would have disposed of shares at a minority price when he/she had control or joint control with the other spouse.

Any case in which it is claimed that the section applies to the sale of a minority holding out of a control holding at a price significantly lower than appropriate to a control holding should be referred to your Team Leader.

Any agreement or sale which provides for the determination or variation of the sale price to fit the value agreed for IHT purposes should be referred to your Team Leader before negotiations are commenced or as soon as the existence of the agreement comes to light.

  Additional Guidance: SVM150000