Client has died. She owned portfolio of EIS shares on which she was able to claim income tax and CGT reliefs. She has owned all the shareholdings for more than 2 years but some of the companies have only been trading for just over a year. Under s 105(1)(bb) as the shares are unquoted they qualify for the relief once held for 2 years (s106), however S105(3) prevents a claim for (broadly) non trading companies. What I cannot find the answer to is how these provisions interact. If the shares had been held for 2 years, and were in a trading company at the date of death is BPR due? Or does the comapny have to have been trading for 2 years at date of death? Strangely I cannot seem to find a definitive answer on this.
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You could get hung up on the word "it" in s106... does "it" mean "relevant business property" and if you haven't held "relevant business property" for two years then you don't get the relief? That's not how I'd read it though - I think the "it" is just "the property"... "property is not relevant business property in relation to a transfer of value unless it (the property) was owned by the transferor throughout the two years immediately preceding the transfer."
Also, I'd question your interpretation of s105(3). "Shares in a company are not relevant business property if the business carried on by the company consists wholly or mainly of (naughty things)."
Your EIS-to-be companies are not doing naughty things. They're preparing to trade.
On both counts I think you're fine, so even if you think my chances of being right are 50% on each, that's a 75% chance overall that you're good to go! :-)
(I have to say I thought this point was covered in commentary, but I have had a look - admittedly, a very quick look - and couldn't immediately see it. If I spot it later and find it disagrees with me, I'll post that here.)
Is IHTM25303 relevant, particularly the last sentence of my quote below?
“For the purposes of the ownership test (IHTM25301) the nature of the business carried on by (or on) the business property need not be the same throughout the two year period. But there must have been a business throughout that period.”
Not in my view.
The default position for unquoted shares is that they are relevant business property, as the OP noted. The only time that's relevant is immediately before a transfer of value - it's not like ER where you have to satisfy the tests throughout a sustained period.
As the OP also noted, Ss105(3) and 106 are two provisions that can stop shares being relevant business property at the critical moment. But...
a) have they been held for two years? Yes, so 106 doesn't apply;
b) is the company doing naughty things? No, so s105(3) doesn't apply.
Your extract does not counter this, that I can see anyway.
More precisely:
b) does the company have a business? Yes. Does that business consist of naughty things? No.