Inheritance/Capital gains tax advice please

Giddytimes

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jimmo

I'll have a go at the Capital Gains Tax aspects first because that is where I claim to have professional experience.
When dad stepped in and insisted that the one and only share in the company was transferred into his name, the transfer of that one share from daughter to father was a transfer between connected persons and deemed to have taken place at open market value.
The open market value of that one share was definitely not its £1 face value. It was, pretty much, the net worth of the company.
The daughter is therefore potentially liable to Capital Gains Tax in respect of her disposal of the 1 share. However, in your own words, the company was in financial trouble by then so how much was it worth?
That is the question that will dictate whether the daughter has any Capital Gains Tax liability.
If the company has turned around its fortunes, thanks to your uncle taking control, there could well be a Capital Gains Tax problem if he transfers the ownership of the 1 share back to his daughter. A stable and financially healthy company is clearly going to have a much higher open market value than it had when it was in trouble.
If, as you seem to fear, your uncle will go to his grave still owning the 1 share in the company then the open market value of the company will form a part of his estate. From an HMRC point of view the same people, SAV ( Shares and Assets Valuation) will be responsible for checking the open market value of the 1 share for Capital Gains Tax and Inheritance Tax purposes so the same valuation principles should be used for both taxes.
When it comes to Inheritance Tax I wouldn't even pretend to understand what relief or exemptions may be available for business assets or property but I wouldn't be surprised if the conditions were pretty well parallel with entrepreneurs' relief for Capital Gains Tax.
You haven't given enough information about what the business does to enable me to judge that.

Giddytimes

Thanks for everyones help-deleted

antrobus

Giddytimes wrote: »

Her dad stepped in and bailed the business out in the form of a loan, but as a condition he insisted on being the sole director and the £1 share capital being put into his name.

Giddytimes wrote: »

It was an accountant in practice who advised my Uncle on this set up and told him there were no CGT or IT implications,

Well there wouldn't be if the share capital had simply been 'put in his name' and beneficial ownership of the share had remained with the cousin. Whether HMRC would accept that this was the case (should there be any potential tax liability to argue about) would depend on whether the whole thing had been properly documented.

lordbase

This is a complicated area and I would advise that you seek professional advice (from a tax advisor not an accountant) to avoid a risky tax cost.

From a CGT point of view, there is a simple solution known as gift of business assets holdover relief:

www hmrc.gov.uk/cgt/businesses/reliefs.htm#4

(Sorry new user so can't post links- just add the dot again after www)

Effectively your cousin would make a claim under the relief on the transfer to your uncle and your uncle would make the same claim on the transfer to our cousin.

This gives your cousin the base cost she originally had in the shares.

The IHT complication is that this is a potentially exempt transfer for your uncle and if he passes on in the next 7 years then the value of the company will be considered to be in his estate (although subject to 50% business property relief if he holds the shares for 1 year). However, whether this generates any liability depends on the size of your uncle's estate and whether he has a surviving spouse that he is living most of his estate to. In that case the company may well be under the nil rate band and escape IHT (although using up some of his nil rate band).

Another solution, as mentioned above is whether your uncle was merely holding the shares on trust for your cousin until the business was sorted out. It may be possible to put in place some simple trust paperwork to address this and ensure that the shares do not fall into your uncle's estate at all. Have the shares been transferred into your uncle's name (and recorded at Companies House?).

I hope you manage to resolve the situation.

Anthony

Giddytimes

lordbase wrote: »

Another solution, as mentioned above is whether your uncle was merely holding the shares on trust for your cousin until the business was sorted out. It may be possible to put in place some simple trust paperwork to address this and ensure that the shares do not fall into your uncle's estate at all. Have the shares been transferred into your uncle's name (and recorded at Companies House?).

I hope you manage to resolve the situation.

Anthony

Thanks Anthony/Antrobus. To be able to put such paperwork in place would the shares need to not have been put into my uncles name already?

My understanding is that they have been put into his name and registered at Companies House, but I am meeting with the accountant tomorrow to discuss the issue and then if necessary my cousin will approach a tax advisor.