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HMRC internal manual

Shares and Assets Valuation Manual

Inheritance Tax: Close Companies - Claims under ss.94 - 102 IHTA 1984

Such claims arise in respect of transfers by close companies or alterations in their share/loan capital or the rights attaching to them. Ss.94 - 102 IHTA 1984 lift the corporate veil and attribute to the participators in a close company a transfer of value made by the company and treat alterations in capital or rights as if they are dispositions made by the participators.

Any case in which ss.94-102 may be in point should be referred to your Team Leader who will consult the appropriate specialist.

The following aims to help identify some of the ingredients of this legislation and the situations which may arise.

Close Company

To be caught by this legislation the company must be a close company as defined in s.102(1). Dymond’s Capital Taxes at Chapter 22 and Company Taxation Manual at CTM60060 are helpful in explaining the meaning of “close company” for this purpose. The definition of close company is complex but, in very general terms, a close company is one that is under the control of five or fewer participators or of participators who are directors. Additionally, a company is also a close company if, on a notional winding-up, five or fewer participators would be entitled to receive more than half of any distributions. Though its precise definition is rather wider, “participator” broadly means “shareholder”.

  Additional Guidance: SVM150000