BPR and Holding Companies

I need confirmation in respect of BPR:
Company A is a private company limited by shares and is owned equally by father, mother, son and daughter (my clients).
Company B is a private trading company limited by shares owned by: 75% as to Company A and 25% as to another individual.
The property that Company B is operating on is owned by Company A. Company B pays rent to Company A.
As I understand, holding companies are not usually covered by BPR as per IHTA 1984 section 105(3). In this case, company A does not deal with day to day matters and only receives rent from Company B. However, section 105(4)(b) says that a holding company can be covered by BPR if one of its subsidiaries carries on a qualifying trade. In this case, Company B which is owned by Company A, could be argued is a trading company as Company A:
(a) Holds the majority of voting rights in it
(b) Has the right to appoint or remove a majority of its board of directors OR

It therefore appears that our client may be entitled to 100% BPR, but this does not feel right.
My concern is does the fact that Company B pays rent to Company A meant that BPR does not apply?
What is the best way to ensure BPR is obtained in these circumstances?
I would be interested to hear other people’s views.

You are familiar with the legislation:“holding company” is not defined as such. Company A would be one under the CA 2006 s1159, which is a start, but the BPR legislation is less prescriptive. In this case there does not seem much doubt.

Its business must be wholly or mainly holding shares in one or more companies whose business consist wholly or mainly of activities within s105 (3). So one is enough and it seems it is a trading company, though what is actually does is not clarified. It can apparently be “argued” that it is, but how arguable is key. It should no doubt be very arguable if any tax planning is to depend on it though less important if the plan is just to contend that it is on a future death of a shareholder in Company A.

Provided it is not carrying on one of those pornographic businesses the question is whether holding the property used by Company B and charging rent makes any difference. Is the property an “excepted asset” reducing the relievable value? The answer is in s112(2) and HMRC (straying into helpfulness) say in IHTM25263 IHTM25263 - Investment businesses: Holding companies - HMRC internal manual - GOV.UK that “It does not matter whether B Ltd pays rent or not”. So useful unless HMRC later disown this opinion (rent is not mentioned in the statute) as not representing an accurate statement of the law.

The effect of s112 (2) is to deem the use of the premises by B Ltd to be that of A Ltd. In HMRC’s example their parent company A Ltd is also trading in its own right but that should not matter because a company within s105(4)(b) is outside s105(3) altogether. But it must also apply the excepted asset test to itself and consider what assets other than shares in B Ltd and the property it might own which would reduce relief and, if significant enough, might even breach the wholly or mainly test. IHTM25265 is slightly helpful but as it says it all depends on the facts. The phrase is used in other tax statutes and as ordinary words are likely to mean what they mean there. There is also broader guidance at SVM111150 SVM111150 - IHT Business Property Relief: Wholly or mainly - HMRC internal manual - GOV.UK which looks at the basic test in s105(3) and verges on the helpful but is inevitably thwarted in that by the test’s being fact-specific. If A Ltd is distributing all or most of its income/paying the amount of remuneration the law accepts as deductible it should be safe but not at the other extreme if it is operating like portfolio investor with net of tax surplus funds.

Jack Harper

Many thanks. You have given me a number of points to follow up.



Based on the information you’ve provided, it seems that Company A could potentially qualify for Business Property Relief (BPR) under the conditions outlined in the Inheritance Tax Act 1984. As you mentioned, BPR is generally not available for holding companies. However, there is an exception under section 105(4)(b) of the Act that allows a holding company to qualify for BPR if one of its subsidiaries carries on a qualifying trade.

In this case, Company B, which is owned 75% by Company A, could potentially be considered a trading company. The fact that Company B pays rent to Company A may not necessarily disqualify Company A from BPR. The key consideration would be whether Company A’s involvement in the activities of Company B goes beyond mere ownership and rent collection. If Company A actively participates in the management and operations of Company B, it could potentially strengthen the argument for BPR eligibility.

To ensure that BPR is obtained in these circumstances, it would be advisable to consult with a tax specialist or solicitor who can review the specific details of your clients’ situation. They can provide tailored advice and guidance based on their expertise in inheritance tax and company structures.