tax question: CGT / IHT / ltd company

[Someone]

Hoping someone can help...

A friend and I are the two beneficiaries and executors of someone's will.

Under the terms of the will, we are left some of the shares in a private
limited company. The company is no longer trading and is to be wound up,
but does have a cash pile which is the only remaining asset of the company.
(Value unknown: say £20k)

There are at least two options about the order in which to do things:

A) Wind up the company and do a capital distribution to the shareholders,
making the payment into the estate. Then pay out from the estate to my
friend and myself.

B) Transfer the shares into the new names, wind up the company and do the
capital distribution, this time making payment directly to the new
shareholders.

C) Any other option that I haven't thought of!

The estate will fall under the IHT threshold, so no tax will be payable on
any legacies paid directly from the estate.

What are the various tax implications? We obviously don't want to pay any
more tax than is necessary.

If we do (A) (capital distribution from company into estate), is CGT
payable by the estate? The company was co-founded by the deceased some
years ago, and so the initial price paid for the shares will be par value
only.

If we do (B) (share transfer, then capital distribution directly to
beneficiaries), is there any CGT payable? Or is the value of the share
equivalent to the cash at the time of transfer, so there is no gain?

Any suggestions welcome

 

[Ronald Raygun]

Under the terms of the will, we are left some of the shares in a private
limited company. The company is no longer trading and is to be wound up,
but does have a cash pile which is the only remaining asset of the
company. (Value unknown: say £20k)

There are at least two options about the order in which to do things:

A) Wind up the company and do a capital distribution to the shareholders,
making the payment into the estate. Then pay out from the estate to my
friend and myself.

Strictly speaking, that violates the terms of the will. You were
left "the shares", not "what they were worth". However, the distinction
is academic since you can vary the will if you both agree and are the
only heirs.

B) Transfer the shares into the new names, wind up the company and do the
capital distribution, this time making payment directly to the new
shareholders.

The estate will fall under the IHT threshold, so no tax will be payable on
any legacies paid directly from the estate.

The general rule is that IHT *replaces* CGT, even if IHT is zero.
So in an estate whose sole asset is a share portfolio (or a house)
worth £255k including a gain of (say) £200k, no CGT is due. If the
deceased had sold the shares/house the day before he died, he would
have had tons of CGT to pay, and the heirs would only get what's left.

What are the various tax implications? We obviously don't want to pay any
more tax than is necessary.

If we do (A) (capital distribution from company into estate), is CGT
payable by the estate?

I'm pretty sure the answer is no. CGT would have been payable by the
deceased if the gain was realised *before* death. Afterwards, IHT
takes over.

If we do (B) (share transfer, then capital distribution directly to
beneficiaries), is there any CGT payable? Or is the value of the share
equivalent to the cash at the time of transfer, so there is no gain?

The latter. You would be deemed to have acquired the shares at what
they were worth on the day of death, so there would only be CGT to
pay by you in respect of any gain which may have occured between
the date of death and the date of encashment.