diff --git a/src/fsharp/Optimizer.fs b/src/fsharp/Optimizer.fs
index f306840fa8..1130f7d186 100644
--- a/src/fsharp/Optimizer.fs
+++ b/src/fsharp/Optimizer.fs
@@ -2749,7 +2749,14 @@ and OptimizeLambdas (vspec: Val option) cenv env topValInfo e ety =
         let valu =   
           match baseValOpt with 
           | None -> CurriedLambdaValue (lambdaId,arities,bsize,expr',ety) 
-          | _ -> UnknownValue
+          | Some baseVal -> 
+              let fvs = freeInExpr CollectLocals body'
+              if fvs.UsesMethodLocalConstructs || fvs.FreeLocals.Contains baseVal then 
+                 UnknownValue
+              else 
+                  let expr2 = mkMemberLambdas m tps ctorThisValOpt None vsl (body',bodyty)
+                  CurriedLambdaValue (lambdaId,arities,bsize,expr2,ety) 
+                  
 
         expr', { TotalSize=bsize + (if isTopLevel then methodDefnTotalSize else closureTotalSize); (* estimate size of new syntactic closure - expensive, in contrast to a method *)
                  FunctionSize=1; 
diff --git a/tests/fsharp/core/subtype/test.fsx b/tests/fsharp/core/subtype/test.fsx
index 321c202c96..052230b699 100644
--- a/tests/fsharp/core/subtype/test.fsx
+++ b/tests/fsharp/core/subtype/test.fsx
@@ -1484,9 +1484,9 @@ module TestTwoConversionsOK =
 // asserted to be equal.
 //
 //This rule is a deliberate artificial limitation to reduce the complexity 
-// of type inference in the common case, at the cost of making “inline” code 
+// of type inference in the common case, at the cost of making “inline” code 
 // less generic. However, the rule should not apply to op_Explicit and op_Implicit constraints. These are special constraint names, known to the language, and we already have special rules around these operators to ensure that the return type 
-// is effectively considered to be part of the “name” of the constraint
+// is effectively considered to be part of the “name” of the constraint
 //  (i.t. op_Explicit -->  int64 is effectively a different constraint to op_Explicit --> int32). 
 //
 //So the solution is thus to not apply the rule for these constraints. 
@@ -1696,6 +1696,24 @@ module RecordPropertyConstraintTests =
     check "ckjwnewk" (f8()) (System.TimeSpan.FromSeconds 2.0) // after mutation
     check "ckjwnewk" (f10()) "Gary"
 
+// See https://github.com/Microsoft/visualfsharp/issues/740 - inlining on subtypes was not allowed
+module InliningOnSubTypes1 = 
+    type A() =
+        static member inline dosomething() = ()
+
+    type B() =
+        inherit A()
+        member inline this.SomethingElse a = a + 10
+        member inline this.SomethingElse2 a b = a + b + 10
+
+    let f () = 
+        let b = B() 
+        let x1 = b.SomethingElse 3
+        let x2 = b.SomethingElse2 3 4
+        (x1, x2)
+    do check "clkewlijwlkw" (f()) (13, 17) 
+
+
 
 // See https://github.com/Microsoft/visualfsharp/issues/238
 module GenericPropertyConstraintSolvedByRecord = 
@@ -1711,4 +1729,4 @@ let aa =
 
 do (stdout.WriteLine "Test Passed"; 
     System.IO.File.WriteAllText("test.ok","ok"); 
-    exit 0)
\ No newline at end of file
+    exit 0)