Inheritance Tax Act 1984 section 135

Reorganisation of share capital, etc.

Section 135 ensures that the inheritance tax relief available under Chapter 4 (transfers within three years before death) is not lost when shares that were transferred are subsequently reorganised or exchanged before the relevant date.

• Where shares that were transferred before death undergo a reorganisation, conversion, share exchange, or reconstruction as defined by capital gains tax rules, the original shares and the new holding are treated as the same property for relief purposes.
• The types of transaction covered include reorganisations of share capital, conversions of securities, share-for-share exchanges, schemes of reconstruction, and equivalent transactions involving unit trust schemes.
• If the transferee, their spouse, or civil partner has to pay any consideration for the new holding as part of the transaction, the market value used to calculate the relief is reduced by the amount of that consideration.
• Certain items are not treated as consideration for this purpose: the surrender or cancellation of original shares or their rights, and the application of company assets or undistributed dividends to pay up the new holding.