Inheritance tax business property relief: two-year minimum ownership
Leopold died on 1 September 2026. Twenty months before his death, he bought for cash a 25% shareholding in Caraway Foods Ltd, an unquoted company that carries on a food manufacturing trade. The shares did not replace any other business property, and he did not inherit them from a spouse. At his death the shares were worth £400,000. Assume that any cap on the amount of 100% relief is not relevant because the value is well within it.
Is business property relief available on the shares in Leopold's estate?
Choose one answer to see the reasoning.
Worked answer
Correct answer C: No, because Leopold had not owned the shares for at least two years before his death.
THE RULE TO REMEMBER
Business property relief requires the transferor to have owned the property throughout the two years before the transfer, including a transfer on death (IHTA 1984 s.106).
Inheritance tax business property relief: two-year minimum ownership
Business property relief (business relief) can reduce the value of qualifying business property for inheritance tax, and shares in an unlisted trading company can qualify for 100% relief (for transfers on or after 6 April 2026, up to the 100% relief allowance, with 50% relief above it). However, property is not relevant business property unless the transferor owned it throughout the two years immediately before the transfer (s.106 IHTA 1984). HMRC's guidance likewise states that relief is available only if the deceased owned the business or asset for at least two years before death. Leopold bought the shares only 20 months before he died. The facts rule out the exceptions for replacement property and for property inherited from a spouse. The shares therefore do not qualify, and no business property relief is available, even though the company carries on a qualifying trade.
Why A is wrong: Unquoted trading company shares can attract 100% relief, but only if the two-year ownership condition is met, and it is not.
Why B is wrong: A minority holding in an unquoted trading company is not a 50% category; 50% applies to, e.g., value above the 100% relief allowance, AIM shares and certain assets used in the business. Here no relief is available at all because the two-year ownership test fails.
Why D is wrong: Shares in an unlisted company are expressly a category of relevant business property.
Why E is wrong: The two-year ownership requirement applies to transfers on death as well as to lifetime transfers.
A little more practice done.
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