Under IHTA84/S105 (6) the land, etc, specified in IHTA84/S105
(1)(d) does not qualify for relief unless the transferor's interest
in the partnership is, or shares or securities of the company are,
relevant business property in relation to the transfer. This means,
for example, that the landlord of a factory cannot get the relief
by purchasing a controlling interest in the tenant company or by
becoming a partner in the tenant firm shortly before his death; the
two years minimum ownership requirement in IHTA84/S106 prevents the
purchased interests being relevant business property.
Shares and Assets Valuation (SAV) will advise whether the
transferor had control of a user company at the relevant time.
The importance of the deceased having control of an occupying
company is illustrated by Walding v IRC [1996] STC 13. Mrs K L
Walding died 14 April 1987. Her estate included 45 shares in
Leeways Packaging Services Ltd and factory units occupied by the
company. The executors claimed business relief for the factory
units under IHTA84/S105 (1)(d).
The availability of relief depended on whether the deceased
had control of the company as required by IHTA84/S105 (1)(d). That
was the issue before the Court. There was no dispute about the
deceased’s 45 shares because they qualified for relief at 50%
whether or not the deceased had control of the company (IHTA84/S105
(1)(bb)).
The company’s issued capital was 100 shares. Of the 55
shares not owned by the deceased, 31 were in the name of the
deceased’s son or his wife. The remaining 24 shares were in
the name of her grandson who was not quite five years old.
For the factory units to come within IHTA84/S105 (1)(d), the
deceased had to have control of the company within IHTA84/S269 (1).
This depended on whether the 24 shares vested in the grandson were
relevant. For the purposes of argument, the Revenue accepted that
he did not have the personal capacity necessary to exercise his
rights of voting. (This concession by the Revenue was not general
and certainly does not extend to one who is near the age of
majority.)
The executors argued that, for the purposes of IHTA84/S269
(1), it was necessary to have regard to the personal capacity (or
incapacity) of the registered shareholder, who is the person who
has conferred upon him or her the votes attached to the shares.
They found support for their argument in the use of the word
“capable” in the phrase “votes capable of being
exercised” in the subsection. Accordingly, they said, the
grandson’s 24 shares had to be disregarded, reducing the
number of shares to be considered to 76. On this basis, the
deceased’s 45 carried full control.
Knox J rejected this argument. Implicit in IHTA84/S269 (1)
are two categories of votes that may exist:
It is the latter category which counts for the purposes of
IHTA84/S269. In the judge’s view, the reference to capability
in IHTA84/S269 (1) is to identify the particular category of votes
aimed at, not to the personal capacity of the registered
shareholder.
That construction was fortified by consideration of the
practical consequences of the conflicting arguments. That of the
executors would cause practical problems. On the other hand, the
construction the judge favoured gives all taxpayers an equal right
to relief regardless of any mental or physical capacity or
incapacity that they might have.
Accordingly, the factory units occupied by the company did
not qualify for business relief.
