Inheritance Tax Act 1984 section 107

Replacements

Section 107 deals with how the two-year minimum ownership requirement for business property relief is applied when business property has been replaced by other business property.

• Replacement business property can qualify for relief if the transferor owned the original and replacement properties for a combined total of at least two years within the five years before the transfer of value, provided the original property would itself have qualified as relevant business property.
• Where the replacement property rules apply, the relief available is capped at the amount that would have been given had the replacement not taken place, preventing someone from swapping into a more valuable asset shortly before a transfer.
• Changes arising from the formation, alteration or dissolution of a partnership, or from the acquisition of a business by a company controlled by the former business owner, are ignored when applying the relief cap.
• Where shares in an unquoted company owned immediately before the transfer would, under the capital gains tax share identification rules, be identified with shares previously owned by the transferor, the ownership periods of the old and new shares are treated as continuous for the purposes of meeting the two-year ownership test.