Section 10 IHTA provides that a disposition is not a transfer of
value if it is shown that it was not intended, and was not made in
a transaction intended, to confer any gratuitous benefit on any
person and either (a) it was made in an arm's length transaction
between unconnected persons or (b) it was the kind of disposition
one would expect to find in an arm's length transaction between
unconnected parties. Section 10(2) goes on to provide that, for the
exemption to apply to a sale of unquoted shares or debentures, it
must be shown that the sale was at a price freely negotiated at the
time of the sale or at such a price as is consistent with free
negotiations.
The s.10 exemption - sometimes called the purchase exemption
- prevents ordinary commercial bargains from being treated as
transfers of value. E.g. one director sells a number of shares to
another, both having taken professional advice. Even in
transactions between connected persons, the exemption may apply,
provided the conditions of s.10 are satisfied. However, the onus is
on the parties to show that the s.10 conditions are met.
Most transfers you have to consider for IHT purposes are
outright gifts. If (unusually) the disposition involved a sale for
partial consideration, the IHT caseworker will make an appropriate
note on the Val 70 (Lifetime).
The related property provisions in s.161 IHTA 1984 are not
in point when considering whether a disposition falls within s.10
IHTA 1984. For example when spouses each have a minority interest
but jointly have control, a disposition by either spouse must be
viewed as one made by a non-controlling minority shareholder.
However, valuers should bear in mind that when considering the
application of s.10 IHTA 1984 we are considering the circumstances
of an actual, and not hypothetical, sale. Therefore,
notwithstanding that the related property provisions do not apply
it is appropriate to question whether a spouse would have disposed
of shares at a minority price when he/she had control or joint
control with the other spouse.
Any case in which it is claimed that the section applies to
the sale of a minority holding out of a control holding at a price
significantly lower than appropriate to a control holding should be
referred to your Team Leader.
Any agreement or sale which provides for the determination
or variation of the sale price to fit the value agreed for IHT
purposes should be referred to your Team Leader before negotiations
are commenced or as soon as the existence of the agreement comes to
light.
| Additional Guidance: SVM150000 |
