Croner Taxwise’s question of the week, answered by Stephen Fletcher, Apprentice Tax Advisor.

“My elderly client, Bill, is looking to retire from his unquoted trading company. The company has large cash reserves made up of retained profit from trading for many years.

He wants to gift the company to his daughter who would like to carry on the business. We are familiar with the CGT issues but would like to make sure business property relief (BPR) is available to reduce any IHT exposure. How can we do this?


Business property relief (BPR) exists to provide relief for transfers of value during an individual’s lifetime or on death where the asset being transferred are ‘relevant business property’. The legislation for BPR can be found in IHTA 1984 s.103-114 and HMRCs guidance on the relief can be found at IHTM25000 and SVM111000.


If Bill decides to gift the business to his daughter this will be a potentially exempt transfer under s3A IHTA 1984 (IHTM04057). Provided that Bill survives more than 7 years after the gift then the normal rules surrounding PET’s will apply and the transfer will be out of his estate and not considered for IHT purposes.

However, if Bill dies within 7 years of making the gift, then the transfer will be brought back into his estate on death. The shares will need to satisfy conditions at the date of transfer and at the date of death for BPR to apply.

Bill’s initial transfer will qualify for BPR as:

  • Shares in an unquoted company are relevant business property – IHTA 1984 s.105(1)(bb) (SVM111040).
  • The company’s activities do not wholly or mainly involve investment activities – IHTA 1984 s.105(3) (IHTM25262).
  • He satisfies the minimum ownership condition of two years – IHTA 1984 s.106 (IHTM25301)

This means that Bill’s daughter would need to hold the shares from the date of the transfer up to the date of death, as outlined in IHTA 1984 s.113A(3)(a) (IHTM25361). However, by virtue of s113A(3)(b), the shares themselves do not have to qualify for BPR at the time of Bill’s death – see IHTM25366.

We may also need to consider the replacement property rules in IHTA 1984 s.113B (IHTM25369) if Bills daughter were to sell the shares in Bills lifetime and replace them with further relevant business property that she holds at the date of his death.


In this case, BPR should apply if all the above conditions are met. The relief will apply at a rate of 100% on the value of the relevant business property, as it consists of shares in an unquoted trading company IHTA 1984 s.104 (IHTM25191).

Although the surplus cash held in Bill’s company does not constitute investment activities, as confirmed in HMRC manuals (SVM111220), it may still be an excepted asset for BPR and the amount of relief would then need to be apportioned as per IHTA 1984 s.112 (SVM111210). Cash may not be an excepted asset if it meets the tests outlined in the legislation – that is if it is used wholly or mainly for the purposes of the business during the relevant period/required for future use in the business.

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