Business Relief - Shares in Trading company which was previously an investment company

An elderly shareholder has held shares for many years in an unquoted investment company which has recently sold its investment property and is holding cash.
He is considering starting to trade. If he dies holding the shares once the trade has commenced, am I correct in thinking that Business relief will apply - even though the company may not have traded for 2 years. This is because his holding period is more than 2 years even though the trading status is less than 2 years.

Heather Cunningham
Harold Sharp Limited

Dear Heather,

With “roll-over” relief, one qualifying asset can be sold and the proceeds reinvested in another qualifying asset without the clock being reset to zero. So BPR potentially lost on the sale of a business can be re-established immediately.

I am assuming from the information that you’ve provided the ‘investment’ company shares were not eligible for BPR in their own right. Therefore, the ‘rollover’ relief is not available and he would need to own the shares for two years to get any BPR.

Lucy Orrow
Lambert Chapman LLP


If the question is will the shares be able
to qualify for s104 IHTA 1984 business property relief (BPR) before 2 years has
elapsed from the company changing from being an unquoted investment company to
being an unquoted trading company then yes I consider that provided the shares
company meet the BPR requirements when a chargeable transfer arise the fact
that less than 2 years before the chargeable event they did not qualify does
not stop BPR being available.

Andrew M Mortimer

HMRC’s view at IHTM25303 is that a business must have been carried on for two years

“For the purposes of the ownership test (IHTM25301) the nature of the business carried on by (or on) the business property need not be the same throughout the two year period. But there must have been a business throughout that period.”

s106 IHTA 1984 does not seem that clear though “ Property is not relevant business property in relation to a transfer of value unless it was owned by the transferor throughout the two years immediately preceding the transfer.”, as it does not state that the property has to be held as business property for two years, but maybe I am interpreting this incorrectly.

Mark Woolley

Price Bailey

The business must have been owned for two years, but the legislation does not answer the question of how long is necessary for it to be a trading business. Where the business has not changed in nature, the period to
review has been considered in a number of cases. In Martin v IRC [1995] STC(SCD) 5 the following approach was taken:

‘The parties were largely at one in accepting that the question has to be answered by reviewing the landlords’ activities over
a sufficient period. Mr Kevin Prosser for the executors urged that the period should be sufficient to include the time when Mr Moore was alive and when the level of business activities was higher than during Mrs Moore’s widowhood. I agree. This was a ‘short
lease’ business: the leases were all for three years and I think the flavour of the business can be best be discovered by looking at that sort of period prior to the transfer of value.’

But if there has been a definite change from an investment business to a trading business the test is applied at the time of a chargeable
transfer and one can argue that no particular length of time is required. However I would have thought that at least one year would be appropriate to show commerciality and that the business is in fact carried on for gain.

Malcolm Gunn

M B Gunn & Co Ltd

Would HMRC regard, what appears in this case to be, the passive holding of shares in an unquoted investment company, as a business?

Mark Woolley
Price Bailey