SVM111170 - IHT Business Property Relief: Dealing in land or buildings

The restriction in s.105(3) for dealing in land or buildings does not deny relief for shares in a company which:

• is carrying on a genuine building and construction business holding a number of properties (e.g. houses or plots awaiting development) as stock in trade.
• or is a property development company provided:

1. the land is acquired with a view to the development and disposal of the completed development, and
   
   
2. most of the profit is derived from the enhanced value of the property resulting from the development (as opposed to increases in the value of the land from the obtaining of planning permission or a general rise in land values).
   
   

You should take care to identify a building or development company which retains and lets its completed property, as this may, over time, convert the business into one of mainly investment holding. However, you must consider each company individually as it is important to remember, particularly in a period of property slump, there may be little or no development activity and previously completed property may be rented out over a number of years.

Dealing

'Dealing' in s.105(3) means dealing as a principal and not as an agent. Thus the normal activities of, for example, estate agents, merchant bankers, and investment advisers are not excluded businesses.

'Dealing' is restricted to the 5 categories specified in s.105(3) viz. securities, stocks or shares, land or buildings. It does not therefore relate to, for example, commodities or money lending.

Regular dealing in commodities may be accepted as trading and not investment. Where however dealings are only infrequent, the case should be referred to the Appeals Team.

If you encounter any queries in this regard, refer the case to the Appeals Team.