Section 136 — Inheritance Tax Act 1984: Transactions of close companies.

Transactions of close companies. 136 1 This section applies where the transferred property consists of shares in a close company and at any time after the chargeable transfer and before the relevant date there is a relevant transaction in relation to the shares; and for this purpose “ relevant transaction ” means a transaction which is—

a the making of a transfer of value by the company, or b an alteration in so much of the company’s share or loan capital as does not consist of quoted shares or an alteration in any rights attaching to unquoted shares in or unquoted debentures of the company , but which does not give rise to an adjustment, under any of the preceding sections of this Chapter, in the market value of the transferred property on the relevant date.

2 Subject to subsections (3) and (4) below, where this section applies the market value of the transferred property on the relevant date shall for the purposes of section 131 above be taken to be increased by an amount equal to the difference between—

a the market value of the transferred property at the time of the chargeable transfer, and b what that value would have been if the relevant transaction had occurred before rather than after that time.

3 Where the relevant transaction is the making by the company of a transfer of value by which the value of the estate of the person who made the chargeable transfer or, if his spouse or civil partner is a long-term UK resident , his spouse or civil partner is increased by any amount, the increase provided for by subsection (2) above shall be reduced by that amount.

4 Where the market value of the transferred property at the time of the chargeable transfer is less than it would have been as mentioned in subsection (2) above, that subsection shall apply as if, instead of providing for an increase, it provided for the market value on the relevant date to be reduced to what it would have been if the relevant transaction had not occurred.