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HMRC internal manual

Shares and Assets Valuation Manual

Inheritance Tax: Close Companies - Transfers of Value by Close Companies ss.94 - 97 IHTA 1984

When a close company makes a transfer of value tax is charged as if each individual participator had made a transfer of the amount apportioned to them by reference to their rights and interests in the company immediately before the transfer. A main requirement is, of course, that as a result of the disposition made by the company the company’s estate after the disposition is less then it was before:-


A company transfers a house to a director for no consideration or a consideration less than the market value


A company has an issued share capital of 100 £1 Ordinary Shares, 50 of them owned by X and 50 by Y. The company makes a gift of £500,000 to trustees for the benefit of X’s and Y’s children. Each of the two participators, X and Y is treated as having made a transfer of value of £250,000

If its conditions are met, s.10 IHTA 1984 affords relief to company dispositions as it does to those by an individual. Companies sometimes make bad bargains and with hindsight a company can often be seen not to have received a benefit commensurate with its outlay. In view of s.10, a bad bargain would not be treated as a transfer of value provided it was a normal commercial transaction not intended to confer a gratuitous benefit. Care needs to be taken not to give any impression that SAV are, by technicalities, seeking to impugn ordinary business transactions. If a transaction is brought to notice as being in the usual course of business but this cannot be accepted, advice should be sought before any further approach is made to the agents.

In the majority of cases involving close companies payment or the asset transferred is liable to Income Tax or Corporation Tax in the hands of the recipient. Where this is the case, there is no claim in to IHT under s.94 (s94(2)(a)).

Transfers treated as made by s.94 are not PETS [s.3A(6) IHTA 1984]. The annual exemption is available as is spouse exemption to the extent that the estate of the spouse of a participator is increased. The “small gifts”, “normal out of income” and “in consideration of marriage” exemptions are not available since they do not apply to deemed transfers.

  Additional Guidance: SVM150000