My client (Mr M) imports a commodity on which he undertakes a manufacturing process, using company B, before selling on to his UK customers.
Company B’s shares are owned solely by a holding company, Company A. The holding company exists to receive dividends from Company B and holds significant cash holdings in excess of £1million. No trading is carried out using this cash. Mr M owns 100% of the shares in the holding company.
I understand that there are also significant cash holdings in Company B (over £1million) together with stock in the form of the commodity valued at £1.5million.
My immediate thought is that the holding company would not attract BPR but what about the cash and stock that is present in Company B?
Is there anyone on the forum that has dealt with HMRC on a similar issue and is able to offer a view on what HMRC’s approach would be in the event of Mr M’s demise?
Please note I’m not looking for guidance on how to mitigate IHT.
The holding company may qualify for relief by virtue of s105(4)(b) IHTA 1984, as the activity of the wholly owned subsidiary will be looked at. Where this is trading then the holding company should also be treated as trading.
Where the holding company also owns separate assets these will be looked at in conjunction with the activity of the subsidiary in order to determine whether the holding company is still one of trading. See s111 and s112 of IHTA 1984.
The issue you have here is that you have a cash asset which will be an “excepted” asset if it is not used wholly or mainly for the purposes of the business nor required for future use in the business.
In practice HMRC’s approach is to look at the group structure (hold co above trading co) as a whole to determine whether it is mainly investment or non-investment in nature. If the conclusion is that the business of the group as a whole does not consist wholly or mainly of making or holding investments then they go on to consider individually all the subsidiaries within the group structure to determine whether any restriction of the relief is necessary.
ICAEW TAXguide 5/11 gives a comprehensive explanation.