value of share

Battle_tax

My partner died and we were contractors working through a company. Not married but lived together. Our company bought a house which was in lieu of a pension and we rent it out. I am the director he was the company sec. We have two shares for the company. The company books still show this house as at the price we paid in 2004. Now I am about to do probate. Do I keep the value of the house as per the books, do I re-value the house to claim all his IHT allowances.
I have an article back from 2004 that says.' There is no CGT on assets you leave when you die and the new owners acquire the assets at the date of death (wiping out previous gains all together).
However the estate may have to pay IHT.'

Is this still true &  how would that work if he only owned half of it ?

Brie

I'm confused.  He didn't own any of the house, the company does.  So why would it be included in probate?

Others are likely to be less confused and give you a more sensible response.  

Sorry for your loss.

p00hsticks

It's a company asset.

As far as I'm aware you need to work out the value of his share of the company assets - including the house -  as at the time of his death (presumably half the total value if both shares are equal) and that's what his share in the company is worth for probate purposes.

Who inherits ? 

poseidon1

Battle_tax said:

My partner died and we were contractors working through a company. Not married but lived together. Our company bought a house which was in lieu of a pension and we rent it out. I am the director he was the company sec. We have two shares for the company. The company books still show this house as at the price we paid in 2004. Now I am about to do probate. Do I keep the value of the house as per the books, do I re-value the house to claim all his IHT allowances.
I have an article back from 2004 that says.' There is no CGT on assets you leave when you die and the new owners acquire the assets at the date of death (wiping out previous gains all together).
However the estate may have to pay IHT.'

Is this still true &  how would that work if he only owned half of cost  it ?

You and your partner created a complex tax position in choosing a company structure to own the property, especially if you did not receive any tax planning advice at the time which has been compounded by the fact you never married.

As of now,  the company shares  have  to be revalued at date of death. That valuation will be the market value of the property plus any retained cash less any outstanding company liabilities (mortgage?).

Once that valuation is done, you inherit your partner's 50% shareholding at that market value less a HMRC  discount  for jointly held shareholdings. If that valuation together with any other inherited assets exceeds your partner's £325k NRB there will be IHT at 40% on the excess (consequence of choosing not to marry). I am assuming you are sole beneficiary, but if you are not the tax outcomes is unchanged.

When the dust settles ( and assuming you are sole beneficiary) you then hold 2 shares in the company with two distinct costs. 1 share will have the market value inherited from your partner whilst the other will be your original cost from inception of the company.

However, the original  2004 cost of the property within the company  has not been affected by any of this. If and when you eventually sell the property, corporation tax will be payable on the full gain since 2004.  

When you then liquidate the company, you will then have a personal CGT liability on at least your personal share holding but a reduced gain ( or potential loss) on the inherited share.

It is clear you will have neither the knowledge or competency to handle the company valuation matter yourself. Therefore reccomend you seek out the services of a tax accountant with small company valuation experience ( probably a Chartered Accountant), as well as a solicitor to assist with probate and any IHT compliance that may arise.

As I say you and your partner created an unduly complicated investment property owning structure, which will make probate and potential IHT more complex than would otherwise be the case.

Finally, I would also suggest you retain a competent proactive accountant to provide you with ongoing tax advisory services and compliance going forward. 

Battle_tax

thanks for the confirmation that I need to value the company asset at todays value. And the value would then be free of CGT.

It's only a two-bed terrace house. I am not sure it's worth the extra cost of a accountant. Our last accountant left our books in a right mess.

We both have retired , he died before he had a pension, and with the house he had an income. we could also claim more expenses and allocated the whole of the rent to his income tax allowance , I did not have to allocate any of the income to me so saved on the income tax side.
Yes it's complicated but so is life.

poseidon1

To be clear, you are only notionally uplifting the property in the company to market value at death for purposes of ascertaining probate valuation of the 50% shareholding.

The original 2004 cost of the company remains unchanged on the company balance sheet, so there will certainly be corporation tax to pay by the company on the entire property gain if sold during your life time.

Your last accountant sounds like a mere bookkeeper if he left your books in a mess, and probably not competent to advise on complex tax in any event.

This is where a decent Chartered Accountant comes into play - ie a firm affiliated to the Institute of Chartered Accountants of England & Wales ( ICAEW).

Think carefully whether you are capable of applying the principles of valuing  closed company shareholdings  for probate purposes.

The article below gives some very general pointers

https://www.buzzacott.co.uk/insights/probate-valuation-considerations-for-non-quoted-shareholdings#:~:text=An estate's Executors or Administrators,considered when determining the probate


The HMRC guidance below indicates what HMRC will be looking at in agreeing ( or not ) your valuation methodology. Note they will likely want to see a couple of previous years accounts balance sheets in coming to their eventual ruling, so hopefully your published accounts are not a mess.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm25082

mybestattempt

Battle_tax said:

thanks for the confirmation that I need to value the company asset at todays value. And the value would then be free of CGT.

It's only a two-bed terrace house. I am not sure it's worth the extra cost of a accountant. Our last accountant left our books in a right mess.

We both have retired , he died before he had a pension, and with the house he had an income. we could also claim more expenses and allocated the whole of the rent to his income tax allowance , I did not have to allocate any of the income to me so saved on the income tax side.
Yes it's complicated but so is life.

Please take the advice given by @poseidon1 to engage the services of a chartered accountant.

I'm concerned from your comments about the income tax treatment of the rental income and the previous accountant leaving the books in a mess.

Where a property is owned by a company the rental income is the income of the company and any money extracted from the company by the directors/shareholders is either by way of salary/dividends.

It may well be that an amount taken from the company by your late partner equated to the rental income but it would not be taxable on him as property income.

Forgive me, if you already knew this but it's very important that you have a full understanding of the tax compliance for your late partner, the company and yourself going forward. 

Battle_tax

your correct he was paid a salary from the company. It just happened to be from the rental income.
Sorry I should have made it clear the last accountant I had was back in 2002. The company is not dormant I still do company accounts every year.

poseidon1

Battle_tax said:

your correct he was paid a salary from the company. It just happened to be from the rental income.
Sorry I should have made it clear the last accountant I had was back in 2002. The company is not dormant I still do company accounts every year.

So you and your partner had received zero professional compliance and tax planning advice since 2002?

There have been a lot of legislative changes to the tax and corporate compliance landscape over that very long period. Apart from the current  assistance strongly reccomended with regard to valuation and probate matters,  you and your now solely owned rental business are long overdue a professional financial and fiscal 'health check'.

poseidon1

Incidentally throughout this post it has been assumed you will inherit the company shares from your partner. This is only the case if he made a will in your favour, so hopefully that is the case since without a will you have no automatic legal standing to deal with his estate, including the company shareholding.

Battle_tax

yes he did leave a will and I am the sole beneficiary. I will take your advice and get some professional  advice. Thanks.