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HMRC internal manual

Shares and Assets Valuation Manual

IHT Business Property Relief: Meaning of ‘unquoted’ and ‘control’

S.105(1)(b) and s.105(1)(bb) both use the term “unquoted”. “Control” is used in s.105(1)(b) and in s.105(1)(cc) and (d). The definition of “unquoted” is straightforward - it should be noted that shares dealt in on AIM qualify as unquoted for this purpose. The definition of “control” is more complex and is dealt with in detail below.


Under s.105(1ZA), with effect from 1 April 1996, the definition of “unquoted” is “not listed on a recognised stock exchange”. Shares dealt in on AIM are accordingly treated as “unquoted” for the purposes of business relief. If, however, shares dealt in on AIM are also listed on a recognised stock exchange overseas, they will not be “unquoted” and will not qualify for business relief. You should, therefore, check if AIM-listed shares have dual listing on a recognised stock exchange.


S.269 IHTA 1984 defines control of a company as the “control of powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised on them”.

The “powers of voting” have to be capable of being exercised immediately before the transfer. It is immaterial that shares may acquire voting rights at a later date or on a particular event. For example, preference shares entitled to voting rights when the preference dividend is x months in arrears have no “powers of voting” unless or until that situation occurs. Similarly non-voting shares which may be converted into voting shares have no “powers of voting” prior to conversion, even if conversion may be effected immediately by notice given by the non-voting shareholder at any time. Such convertible shares are, for example, sometimes held by venture capital investors.

S.269 requires only a majority (over 50% of the exercisable votes). It is immaterial that more than a simple majority may be required on certain issues under the Articles or company law.

Part of the share capital in some companies may comprise shares which, although primarily non-voting, have voting rights on limited questions. In such cases, a holding of full voting shares carrying a majority of votes on all but the limited questions would be unable to satisfy the unqualified “all questions’” test. Accordingly s.269(4) provides that where voting rights are restricted to:

  1. the question of winding-up the company and/or
  2. any question ‘primarily affecting’ the particular shares or securities of that class,

“all questions affecting the company as a whole” must be read as a reference to all such questions except any in relation to which those limited powers are capable of being exercised.

The meaning of “capable of being exercised” in s.269(1) was examined in Walding v IRC (1996) STC 13. There the deceased owned a factory used by a company in which she held 45 out of 100 shares. 24 shares were registered in the name of her four-year-old grandson. The executors, claiming business relief under s.105(1)(d), argued that the deceased held a majority of votes capable of being exercised, because the grandson was too young to vote. In finding for the Revenue, Knox J held that the words “capable of being exercised” referred not to the personal capacity of the shareholder but to a particular category of votes. Implicit in s.269, he said, were two categories of votes. One category was capable of being exercised only on questions that did not affect the company as a whole, while the other category was capable of being exercised on all questions affecting the company. It was the latter that counted for the purposes of control of the company within s.269.

If it appears that any of the limited questions fall outside 1. and 2. above and relief that relies on there being control holding will have to be denied if those questions are taken into account, the case should be referred to the Litigation and Technical Advice Team (LTAT).

Source of control

S.105(1)(b) provides that control must be derived through shares or securities. Voting power derived in some other way, for example a Chairman’s casting vote, cannot be taken into account. Control may however be derived with the help of shares or securities in another company controlled by the transferor.

Example A

A has 49 out of 100 voting shares in X Ltd. A also has control of another company, Y Ltd, which owns a further 40 voting shares in X Ltd. A has control of X Ltd within the meaning of s.105(1)(b). [Note the shares in company X should also be valued on a control holding basis under the “estate concept” principle.]

For the purposes of S.105(1)(d) only, the chairman’s casting vote can be taken into account in determining whether a person has control.

Cases where there is a beneficial interest in possession

The voting shares or securities to be taken into account for determining the existence of control are the same as those taken into account for valuation purposes. This means

  • those shares and securities comprised in the transferor’s estate immediately before the transfer including any settled shares or securities in which the transferor had a (qualifying) beneficial interest in possession (see Chapter 16 of the Inheritance Tax manual at IHTM16061 onwards and Chapter 108 of this manual at SVM108250) which treats him as beneficially entitled to the underlying shares and so on (s.269(3) IHTA). This applies even if shares and securities are left out of account for example, under para 2 schedule 6 - the preserved Estate Duty “surviving spouse” exemption.
  • any related property under s.161 (s.269(2) IHTA).

Shares or securities only ever held by a transferor purely as trustee should therefore be disregarded.

S.91 IHTA 1984 is relevant when a person (“the beneficiary”) would have been entitled:

  • to the whole or part of the residue of the estate of a deceased person
  • if the administration of that estate had been completed.

The effect of s.91 is that for IHT purposes the beneficiary’s interest is treated as a direct interest (and not merely a right) in the assets constituting the unadministered estate.

Example B

A transfers 15 shares in company X when he owns 30 out of 100 shares. In addition, he is entitled to a half share of his late mother’s estate which includes the remaining 70 shares in company X.

Although the Executors of his mother’s Will have yet to complete the administration of her estate, A is deemed to have a direct interest in 35 of the 70 shares in company X. As a consequence, although the shares previously held by his mother have yet to be registered in his name, A is deemed to hold 65 out of 100 shares immediately prior to the transfer of the 15 shares under consideration.

Cases where there is no beneficial interest in possession

The shares or securities to be taken into account are those comprised in the settlement immediately before the chargeable occasion (see this chapter at SVM111020). When a settlement is created on or after 22 March 2006, it may be subject to ten-yearly charges and exit charges even if a beneficiary has an interest in possession. Such settlements are treated like discretionary settlements - in other words the only votes to be taken into account are those attached to assets in the settlement.

  Additional Guidance: SVM150000