The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Rayney of Peter Rayney Tax Consulting Ltd provides comprehensive and up to date tax information covering:
IHTA 1984, s 105(1)(a) lays down some prescriptive rules about the value of an unincorporated business which qualifies for 100% BPR.
Broadly, the value of a business, or an interest in a business, is taken to be its net value. The net value is the value of the assets in the business (including goodwill), reduced by the liabilities incurred for the purposes of the business.
In the case of Marquess of Hertford v IRC, the Special Commissioners ruled that where 70% of a historic house was open to the public as a business and 30% remained a private home. The house was a single asset used in the business and the whole value was eligible for BPR.
The value of a share in a partnership or LLP must reflect the value of the partner’s / member’s interest in the business (referred to hereafter as ‘partner’ for the purposes of simplicity). This is based on his entitlement under the partnership or membership agreement.
In such cases, the partners are collectively entitled to each and every asset of the partnership, in which each of them has an undivided share. This means that the value of the partner’s interest is taken to be his pro-rata share of each asset (less the share of the liabilities).
However, any restrictions imposed by the partnership agreement must be taken into account in assessing the partner’s interest.
The vast majority of partnership agreements have ‘goodwill accrual’ clauses which provide that, when a partner leaves the partnership / LLP, the value of the goodwill always vests in the continuing partners. This means that the value of goodwill is normally excluded from the value of a partner’s interest in
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