Inheritance Tax Reliefs

Tax Question

Regarding Inheritance Tax reliefs, my client died and, at the time of death he had held shares in a limited company for 3 years. For 2.5 of those years the company was dormant, not undertaking any business whatsoever. I am looking at the rules for Business Property Relief and I see that the shares were held for at least the minimum period (2 years) but I am concerned that the company did not trade throughout that period.

Tax Answer

This raises an interesting point. As you state the asset was held for the requisite period, however, there is one further consideration. This requires that the company must have been in business for the two year period to death.

Strangely, it is not necessary that the business would, when considered alone, be a qualifying trade for Business Property Relief (BPR) for the two years. The qualifying business purpose must be in place at the time of transfer (in our case, death) and, provided there was some business throughout the 2 years to death, then the relief will be available.

For example, the company could have been running a property investment letting business for 18 months and then start trading for the final 6 months. In these circumstances, BPR would be due.

In our case, however, as the company was dormant during the period, there would be no business activity for the full two years and so the shares would not qualify for BPR. This view is supported by HMRC at IHTM25303.

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