50% shareholder H has died and company has received insurance payout to finance buyback of shares. W (widow) will then hold 100% of the issued share capital.
Questions:
I believe that H and W, no longer living together, will not be treated as associates so the substantial reduction test for capital treatment should not immediately be an issue?
Main concern is that there is a shortfall between the insurance proceeds and the value placed on the shares, and company does not have the cash to pay that shortfall in one go. My understanding is that in company law payment must be made in full at the time, although some could be lent back. However, this might cause the 30% connection test to be failed. An alternative would be to sell the shares in tranches - the problem here is that while the first would easily meet the substantial reduction test, the likelihood is that subsequent sales would not. Which leaves the third option - a carefully drafted multi-completion buyback?
Thoughts/comments, anyone?
TIA
Thanks for the responses - particularly Chicken Farmer. I believe that the trade benefit test would be met because HMRC specifically say that a buyback following death is OK. However, it seems that the substantial reduction condition is likely to be the problem here - widow is the sole beneficiary under H's will.
Replies (6)
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The fundamental question here is whether you think capital treatment is due because the buy-back would benefit the trade or is it to pay IHT on the death?
You seem to be working on the 'trade benefit' basis but it is not clear why you think this buy-back would benefit the trade, rather than just the widow.
Anyway the PRs of the deceased and the widow ARE associates if she has a significant interest in the shares held by the estate - s. 1061 CTA 2010. Is she a beneficiary or life tenant??
Apart from in orange, it is a thankless task trying to help Aweb users.
Or is that abusers?
I am perhaps being naïve in thinking that someone who posts a question is really interested in the responses.
They are interested in the responses, but not to the extent of compromising their anonymity.
Or if the response looks like it's going to be something other than the answer that they want.