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HMRC internal manual

Shares and Assets Valuation Manual

IHT Business Property Relief: Other circumstances where basic rule relaxed

There are three other circumstances in which the minimum ownership provisions can be met.

These are listed below:

1 - Replacement property - s.107(1)&(2)

the shares or securities have replaced other property - which may in turn have replaced other property and so on. The conditions are that:-

a. property was owned by the transferor for periods totalling at least 2 years during the 5 years immediately prior to the transfer, and

b. the replaced property, and any earlier replaced property taken into account in the 2 year total at a. above, would (apart from the length of ownership) have qualified for relief on a transfer immediately before (each) replacement; [For the restrictions relating to this provision, see this chapter at SVM111090].


A sold his shareholding (which he had held for many years) in X Ltd, a qualifying unquoted company, on 1 March 2004. With the total proceeds he bought a holding of shares in Y Ltd, another qualifying unquoted company, on 1 February 2005. A died on 1 October 2006. Business relief is available

2 - Reorganisations - s.107(4)

the shares were received in exchange for other shares on a capital re-organisation (including a bonus or rights issue), conversion of securities, company reconstruction or amalgamation within the meaning of sections 126 to 136 of the Taxation of Chargeable Gains Act 1992 and the earlier shares and the transferred shares were cumulatively owned by the transferor throughout the 2 years immediately preceding the transfer (s.107(4)). [Before the 1996 Act s.107(4) did not apply to control holdings. Any case involving a rights issue which took place within two years of a death or other chargeable event should be referred to the Litigation and Technical Advice Team (LTAT).]


E has held 100 £1 Ordinary shares in a qualifying unquoted company for many years. In 2006, he receives an additional 300 shares in a 3 for 1 bonus issue. On his death in 2007, all 400 shares meet the ownership test.

3 - Successive transfers - s.109

(for any property) the property was acquired by the transferor or his/her spouse on an earlier transfer of value or directly or indirectly replaced property so acquired - provided

  • business relief was available on the property on the earlier transfer or would have been available had the transfer not then been exempt, and
  • either the earlier or present transfer related to a death (s.109(1)).

B received a control holding of shares in Z Ltd, a qualifying unquoted company, under the will of C, who died on 1 December 2005. Business relief was available on that death. On 1 February 2007 B transfers the shares to D. Business relief is available on the transfer.

If you encounter any difficulties in this area you should refer to the LTAT.

  Additional Guidance: SVM150000