Revenue Note for Guidance
97 Successive benefits
Summary
Where the disponer dies within 2 years of acquiring relevant business property, the 2-year rule cannot be complied with in relation to an inheritance of that property taken on that disponer’s death. The rule is, however, relaxed where the earlier acquisition would have qualified for the relief. The effect of this section is that if A leaves relevant business property on his death to B, a subsequent transfer of the property on B’s death can qualify for relief even if this occurs less than 2 years after A’s death. Also, if C makes a lifetime transfer to D and D dies within the 2 years, the appropriate reduction can be made on D’s death.
Details
(1) Where relevant business property is acquired by gift or inheritance and the gift or inheritance qualifies for business relief (or would have qualified for business relief if the relief had been available at that time), then a subsequent inheritance of that property (or of any relevant business property which replaces that property) taken on the death of the earlier beneficiary qualifies for the relief even though not owned for 2 years.
Example
A decided to retire from the family business on 1 March 2003. She gifted her 100 shares in X Ltd. (the entire share capital) to her brother, B. The shares qualified for business relief. B died on 1 April 2003 and left what were previously A’s shares to his son, C. Business relief will apply notwithstanding the fact that B only owned A’s shares for 1 month.
(2) Where the value of any replacement property is higher than the value of the property replaced, the relief is restricted to what it would have been had the replacement not been made.
(3) The relief is restricted to the same fraction of any property comprised in the later gift or inheritance as was acquired on the earlier gift or inheritance. Thus, if the earlier benefit was partly a gift and partly a purchase, the relief will only extend to the part of the property which was a gift. If, in the previous example, A had gifted her 100 shares (valued at €100,000 on 1 March 2003) to B in consideration of B giving her €10,000, then the relief available to C in respect of the benefit taken on 1 April 2003, when the shares were valued at €110,000, will be restricted as follows:
Market value of earlier benefit: |
€100,000 |
|
Taxable value of earlier benefit: |
||
(€100,000 – €10,000) |
= |
€ 90,000 |
Fraction of subsequent benefit which will qualify for relief:
€ 100,00 - € 10,000 |
9 |
|
= |
||
€ 100,000 |
10 |
Amount of subsequent benefit which will qualify for relief:
9 |
||
€110,000 × |
= €99, 000. | |
10 |
Relevant Date: Finance Act 2015