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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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IHT Business Property Relief: Group situations

Where a company holds shares in subsidiaries, it is possible that those shares may be regarded as investments for the purposes of s.105(3). However, s.105(4)(b) preserves relief where a company is wholly or mainly engaged in being a holding company of one or more subsidiaries whose business(es) is not/are not wholly or mainly investment.

For this purpose ‘holding company’ and ‘subsidiary company’ have the same meaning as in s.736(1) of the Companies Act 1985, as amended (in relation to events from 1 November 1990) by s.144 Companies Act 1989. These meanings are:

‘A company is a “subsidiary” of another company, its “holding company”, if that other company-

  1. holds a majority of the voting rights in it, or
  2. is a member of it and has the right to appoint or remove a majority of its board of directors, or
  3. is a member of it and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in it,

or if it is a subsidiary of a company which is itself a subsidiary of that other company.

[There is a similar definition in s.1159 Companies Act 2006.]

This last point is relevant when considering the impact of section 111 (see below)

Subject to the paragraphs below relating to s.111 the only grounds on which relief may be denied under s.105(3) are if the business of the holding and subsidiary companies viewed as a whole does not fall within s.105(4)(b). The test is a factual one. Accordingly, the activities, income sources and asset values of the parent and each of its subsidiaries must be examined to form a picture of the group business. Our approach, in practise, is to look at the group as a whole to determine whether it is mainly investment or non-investment and then to examine each tier separately, whether top down or bottom up, to see if any restriction of the relief is required pursuant to section 111.


Company A is merely a holding company with two subsidiaries, B and C. B deals in land and buildings and carries out a minor activity of building and construction. Company C is an investment company with a large portfolio of quoted securities. The group viewed as a whole does not qualify for relief under s.105(3).

Section 111

Even where the shares or securities in the holding company qualify for relief under s.105(4)(b), s.111 provides an important restriction to relief if the business of any of its subsidiaries falls within the excluded class (for example wholly or mainly investment). In this case, business relief is available on what the value of the shares in the holding company would have been if the non-qualifying subsidiary(ies) was/were excluded from the group. It should be noted that it is not normally correct to apportion the agreed value of the shares in the ratio that qualifying and non-qualifying assets bear to one another.

The restriction does not apply where:

  1. the business of such a subsidiary consists wholly or mainly of being a holding company of other companies with businesses not falling within the excluded class, or
  2. its business consists wholly or mainly of holding land or buildings wholly or mainly occupied by another member of the group - provided that member does not have a business within the excluded class or satisfies the holding company test in para 1. above.

The legislation leads to an anomaly with which valuers should be familiar. Shares in a company which has no subsidiaries, which is mainly engaged in trading but carries on a minor business of making or holding investments will qualify for relief in full. However, if the investment business were carried on by a wholly owned subsidiary of the trading company, and the investment business were carried on as the principal activity of the subsidiary, relief would be restricted by s.111. This is illustrated in the following examples.

Example 1

Company A is a holding company with two subsidiaries, B and C. B is an engineering company and C deals in land and buildings. Overall, the engineering business predominates. Relief is restricted to that part of the value of A which is attributable to the trading activity (in other words B).

Example 2

Company A is itself mainly an engineering company with a minor activity of dealing in land or buildings. The assets solely attributable to the latter activity are not excepted assets under s.112(2) - see this chapter at SVM111210. S.105(3) will not be in point so that relief will be given in full.

Example 3

Company A has two subsidiary companies B and C. B is wholly an engineering company. C is mainly engaged in engineering but also carries on a minor business of dealing in land and buildings. In this example relief on company C cannot be denied under s.111. Nor can relief be denied under s.112 on company C’s minor activity of dealing in land and buildings (see Example 2 and this chapter at SVM111210).

Valuers will not necessarily be able to make a judgement as to whether any subsidiary requires to be left out of account under s.111 on the basis of consolidated accounts alone. It is a matter of judgement whether it is necessary to call for all subsidiary accounts in a particular case.

Cases will arise where there are intermediate subsidiary companies.

Example 4

Company A has two wholly owned subsidiaries, Company B and Company C. Company B itself has three wholly owned subsidiaries: Companies D, E and F. For the purposes of section 111 Companies D, E and F will each be regarded as subsidiaries of Company A.

If all the companies in the Group were trading except for Company F which was wholly engaged in making or holding investments, Company F would need to be taken into account in calculating a restriction of business relief. Whether shares in Company A would qualify under s.105(3) would depend on a consideration of the facts, as would the treatment of Company B

This is not a straightforward subject. In all cases you should consider whether leaving subsidiaries of small value out of account would in fact affect the overall value. This is especially so in the case of minority holdings where the valuation may have been primarily based on the dividend or earnings stream. If it would not affect the overall chargeable value, or the effect would be marginal, there may be no point in proceeding with the point.

  Additional Guidance: SVM150000