What is a buy-sell agreement for business partners?
Answered 17 March 2026
I'll answer this question using the retrieved sources, which contain relevant HMRC guidance on buy-sell agreements in the context of business partners and shareholder directors.
What is a Buy-Sell Agreement for Business Partners?
What the law says
Under IHTA 1984, s.113, a buy-sell agreement constitutes a binding contract for sale. For an agreement to qualify as a buy-sell agreement within s.113, it must satisfy all three of the following conditions:
- The partnership interest (or shares) of the deceased partner passes to their personal representatives;
- The personal representatives are required to sell the interest or shares to the surviving partners or shareholders; and
- The surviving partners or shareholders are obliged to buy the partnership interest or shares.
When these requirements are met, the agreement is a "buy and sell" agreement, and it prevents the interest or shares from qualifying for Business Relief (BR).
HMRC Guidance / Practice
Definition and structure: Partners and shareholder directors may enter into agreements whereby, when one of them dies before retirement, the surviving partners or directors may purchase the deceased's partnership interest or shares. The funds for the purchase are often provided by life assurance policies.
Rarity of true buy-sell agreements: HMRC notes that only most exceptionally does such an agreement constitute a binding contract for sale within s.113. The three-part test (pass to personal representatives → obligation to sell → obligation to buy) is rarely satisfied.
More common alternatives (which do not constitute buy-sell agreements and therefore do not prevent Business Relief) include:
- The deceased's interest passes directly to the surviving partners, who are required to pay the personal representatives a particular price; or
- The deceased's interest falls into the estate, but with an option for the surviving partners to purchase it.
Company articles: Disqualification from Business Relief does not apply to shares where a company's articles merely require personal representatives to offer shares for sale — provided there is no obligation on the offerees to buy. Only where both sides are bound (one to offer, one to purchase) should relief be denied.
Partial consideration sales: Property should not be regarded as disqualified under this provision where the transfer of value is itself a sale for partial consideration.
Reporting: HMRC valuers are instructed to notify the Litigation and Technical Advice Team (LTAT) of any buy-sell agreement that comes to light during negotiations. Cases where Business Relief should be denied by reference to s.113 should be referred to Technical.
In summary: A buy-sell agreement is a specific type of binding contract between business partners (or shareholder directors) that creates a mutual obligation — the deceased's estate must sell and the survivors must buy — upon the death of a partner. Its key practical consequence is that it disqualifies the relevant business interest from Inheritance Tax Business Relief under IHTA 1984, s.113. Such agreements are rare; most partnership succession arrangements do not meet this strict definition.
Citation sources
Shareholder directors of companies may enter into agreements between themselves to the effect that when one of them dies before retirement the surviving directors may purchase the shares of the one who has died. The funds for the purchase may be provided by appropriate life assurance policies. Only most exceptionally does such an agreement constitute a binding contract for sale within s.113. For the agreement to come within s.113 it has to provide for the shares of the deceased shareholder to pa
IHT is charged on the value transferred by a chargeable transfer. If a partner gifts all or part of his share of the partnership, the partner will have made a transfer of value. The gift could be made to another existing partner, for example. Under IHTA 1984/S10, however, a disposition not intended to confer gratuitous benefit on another person is not a transfer of value if: it is made in a transaction at arm’s length between unconnected persons, or it might be expected to be made in a transacti
Partners and shareholder directors of companies may enter into agreements between themselves to the effect that when one of them dies before retirement the surviving partners or directors may purchase the partnership interest or shares of the one who has died. The funds for the purchase may be provided by appropriate life assurance policies. Only most exceptionally does such an agreement constitute a binding contract for sale within IHTA84/S113. For the agreement to come within IHTA84/S113 it ha