93 Relevant business property

Summary

This section deals with the type of property eligible for business relief. Generally speaking, the property must consist of a business, or an interest in a business, or shares or securities of a company. Shares or securities must, as a rule, be unquoted and the beneficiary must, except in the case of a family company, hold a minimum interest in the company after taking the gift or inheritance. Quoted shares or securities may be eligible for relief if they were unquoted when they were acquired by the disponer.

Investment businesses and businesses which consist of dealing in land or financial assets are excluded from the relief.

Details

(1) In order to qualify for business relief, the property must be “relevant business property” which is defined as:

• property consisting of a business or an interest in a business (the property in question must consist of a whole business or part of a whole business. For example, a transfer of a factory or any other individual asset used in a business will not qualify for relief if transferred to the beneficiary without the business);
• unquoted shares or securities of a company carrying on a business provided that the beneficiary, on the valuation date and after taking the gift or inheritance, either:

owns more than 25% of the voting rights relating to all questions affecting the company as a whole,

controls the company within the meaning of section 27, or

owns at least 10% or more of the aggregate nominal value of all the issued shares and securities of the company and has worked full-time in the company (or, in the case of a group, for any company or companies in the group) throughout the period of 5 years ending on the date of the gift or inheritance;

• land, buildings, plant or machinery owned by the disponer but used wholly or mainly for the purposes of a business carried on by a company of which the disponer has voting control or by a partnership of which the disponer was a partner. The land etc. and the partnership interest or shares or securities in the company must be taken as a gift or inheritance by the same beneficiary from the same disponer at the same time. In addition, the partnership interest or the shares or securities must qualify as relevant business property and the land etc. must have been used by the company or by the partnership throughout the minimum ownership period (see note on section 94). It is often commercially desirable (as well as historically commonplace) for shareholders in private trading companies to personally own the land or buildings and other assets used in the business of their company rather than transferring those assets to the company. In order to accommodate this reality, CATCA 2003, s93 (1) (e) provides that relevant business property includes any land or building, machinery or plant which immediately before the gift or inheritance was used wholly or mainly for the purposes of a business carried on by a company controlled by the disponer or by a partnership of which the disponer was then a partner. In many family run companies, each spouse or civil partner holds 50 per cent of the share capital and as a result neither has control of the company. As neither spouse or civil partner has control of the company in that situation Business relief was not available on the personally owned assets being transferred when the business was being transferred. Finance Act 2014 addresses this problem by providing that from 23 October 2014, in the case of spouses and civil partners, that the control requirement is satisfied where, taking their shareholdings together, they control the company.
• certain quoted shares in or securities of a company (in order to qualify for business relief, the shares must have been owned by the disponer immediately prior to the disposition and unquoted at 23 May 1994 or, if later, the date when the disponer acquired those shares).

(2) Where a company has more than one class of share and the votes attaching to a particular class are limited to questions involving the winding-up of the company or to questions primarily affecting shares or securities of that class, those votes are to be ignored for the purpose of deciding the element of voting control.

(3) The business carried on must not consist wholly or mainly (i.e. in excess of 50%) of dealing in land, shares, securities or currencies or of making or holding investments. In deciding this question regard will be had to the following:

• the ratios of asset value and profit attributable to trading and investment respectively;
• the ratio of turnover to investment income;
• whether the employees are engaged more on the trading side than on the investment side and vice versa;
• whether there are any particular reasons for low trading profits;
• the use to which the investments or the income from the investments are put; and
• how the company is described in the annual accounts.

(4) Where the business of a company consists wholly or mainly (i.e. in excess of 50%) of being a holding company of one or more companies whose business would not be an excluded business under subsection (3), the business of the holding company is not considered to be an excluded business notwithstanding that subsection. In addition, subsection (3) does not apply where the value of shares or securities is wholly or mainly (i.e. in excess of 50%) attributable, directly or indirectly, to trading activities. The provisions of section 99 are ignored for the purposes of determining the value of such shares or securities.

(5) Land, buildings, machinery or plant which qualifies under subsection (1) must be transferred at the same time as the partnership interest or the shares or securities of the company and that interest or those shares must also qualify for relief.

(6), (7) As respects land, buildings, machinery or plant, any reference to a disponer includes a reference to a life tenant under a settlement, and any powers of voting attached to shares or securities in the name of the trustees of a settlement are deemed to be owned by the life tenant.

Relevant Date: Finance Act 2015