BPR is available on a transfer of value attributable to ‘relevant business property’ where certain conditions relating to ownership periods and types of business are satisfied. The definition of ‘relevant business property’ is found at IHTA1984 s105 and includes unquoted trading company shares. You have advised that the shares, at the time the gift was made, did qualify so we can assume the relevant conditions for BPR had been met.
At the time of making the gift it would have been classified as a Potentially Exempt Transfer. BPR is not required at this point and, in simplistic terms, where the donor survives the following 7 years Inheritance Tax is not chargeable on the transfer.
Sadly, for your client, it does not appear that this 7 year period will be met. As a general principle, when calculating BPR on the donor’s death, the donee must either still own the relevant business property at the time of the donor’s death or, if sold, have replaced it with other relevant business property within 3 years of the disposal. BPR can also be withdrawn where the property has been retained by the donee but no longer qualifies for BPR on the date the donor died. This would appear to be the case here as the company has ceased trading but luckily the legislation contained in IHTA 1984 s113A comes into play.
IHTA 1984 s113A (3) and (3A) states –
113A(3) The conditions referred to in subsections (1) and (2) above are–
(a) that the original property was owned by the transferee throughout the period beginning with the date of the chargeable transfer and ending with the death of the transferor; and
(b) except to the extent that the original property consists of shares or securities to which subsection (3A) below applies, that, in relation to a notional transfer of value made by the transferee immediately before the death, the original property would (apart from section 106 above) be relevant business property.
113A(3A) This subsection applies to shares or securities–
(a) which were quoted at the time of the chargeable transfer referred to in subsection (1) or subsection (2) above; or
(b) which fell within paragraph (b) or (bb) of section 105(1) above in relation to that transfer and were unquoted throughout the period referred to in subsection (3)(a) above.
Therefore, as long as the unquoted shares qualified for BPR at the date of the original gift and the shares are still unquoted at the date of death BPR will be available on your client’s death, the fact that the company is no longer trading is not an issue.
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