company paying inheritance tax

company paying inheritance tax

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A shareholder dies leaving 98% of the company valued at £1million in his estate.  The shares are to be inherited by his daughter who currently owns the other 2%.  What are the tax implications if the company pays the inheritance tax?  Although a trading company, due to the balance sheet, the company would not meet HMRC's criteria for being treated as a trading company.  Thus the shares would not be exempt from IHT.

Your thoughts would be appreciated.

Many thanks

Replies (5)

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By MBK
14th Feb 2013 14:03

Check out first

There are many cases where people think a balance sheet disqualifies a company's shares from BPR, but it in fact doesn't. The company only has to be 50%+ trading when looked at in the round - taking all factors into account.

What you may have is excepted assets, which means that part of the value would be subject to IHT.

If it really doesn't qualify for BPR I don't see how the company can pay the IHT. But the instalment option should be available (albeit possibly with interest) so maybe the IHT could be paid over 10 years out of dividend income.

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By eastangliantaxadvisor
14th Feb 2013 15:09

I agree with MBK re the BPR relief available.

 

If the company paid the IHT, then it would be paying the liability of the estate, and therefore the amount would be due from the estate exectors. I can see this as being far too complictated, you would have to imagine and see what the amount of the estate is, who the beneficies are and so on, wording of the will - it may be that the IHT liability would fall on the daughter, with s455 and benefical loan issues as well. This is acase where I would say that the comany is best not paying it in the first place!

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By mmurray.moorsam.com
14th Feb 2013 16:27

Could the company effectively buy back the shares from the estate upon death and thus in that way the estate would have the funds to pay the IHT and the daughter would effectively have 100% of the company.

There would be a CGT uplift upon death, thus no CGT, IHT only.

We accept IHT 40% would be payable on the estate. Apportioned BPR may be an option but for the purposes of simplicity here I won't go into that just now.

Thoughts much appreciated

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By eastangliantaxadvisor
14th Feb 2013 17:12

Yes 0 if it fulfils the conditions, which would be for the purposes of paying IHT,

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By jndavs
18th Feb 2013 15:36

Be careful re BPR

There are a number of ways BPR can become unavailable

 - If the 'trade' is property rental, dealing in shares etc

 - If the company is cash rich ie has funds in excess of what it needs to carry on the trade

 

In these cases if the company went ahead and paid the IHT, you would probably be looking at a beneficial loan.

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