Business property relief holding companies - 2 questions

I’m looking at a prospective new structure whereby 3 shareholders would each hold shares in a private holding company (PrivateCo). The only asset of PrivateCo would be 51% of a listed holding company (HoldCo), which in turn holds 100% of a trading company.

My first concern was the intermediate holding company. HMRC appear to accept that an intermediate holding company does not prevent the relief. On my reading ss.105(3) and (4) should operate to allow a chain of multiple holding companies as ss(3) would be disapplied all the way down but unhelpfully the 1995 HMRC published statement simply states it as their “policy” to look through holdcos. In addition, in their given example the top holding company holds 100% of the intermediate holding company - I can’t see why that would be an issue given the definition of holding company but it may have been more relevant as the legislation stood in 1996.

The other issue is the rate - PrivateCo shares qualify for 100% whereas a controlling interest in a listed company only qualifies for 50%. It seems to me that the 100% rate should apply but it does seem a rather easy way to obtain the higher rate in relation to a listed holding if one were structuring with that in mind (it is just an accidental benefit here). The only real doubt in my mind is the wording of s.104(1) and whether it might be read to look through PrivateCo to the HoldCo listed shares beneath:

104(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced—

(a) in the case of [businesses and unlisted shares], by 100 per cent;

(b) in the case of other relevant business property [ie listed shares], by 50 per cent;

Does anybody have any experience of either of these two points and can provide some reassurance (or otherwise!). Neither is directly addressed in any of the leading or less-leading works; the latter at least is probably an uncommon scenario.

Andrew Goodman
Osborne Clarke LLP

As I see it, the listing of Holdco is not relevant to the shareholders in PrivateCo. They have shares in an unquoted company whose business is mainly that of a holding company. As stated, HMRC have a practice of allowing relief despite the presence of an intermediate holding where the ultimate subsidiary company is trading. So I would argue for 100% relief for the 3 shareholders.

Malcolm Gunn

M B Gunn & Co Ltd