Transfer of company shares on death


S

Shane Cook

Hi,

I own a limited company which holds a number of properties we rent out. The
company has a sole shareholder, myself, who is also the company director. If
I was to die, would the company share be treated as part of my estate, and
thus transferred automatically to my wife/daughter, or would I specifically
need to make a will to ensure this was the case?

Supposing the the property company had a million pounds of property in it
(yeah, I wish), how is this treated for inheritance tax purposes, as the
shares are only valued at £1 each. If this generates an inheritance tax
liability, would having two shareholders in the company and simply revoking
the share of the departed director (myself) remove this liability?

Kind Regards,
Shane Cook.
 
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S

Socrates

Supposing the the property company had a million pounds of property in it
(yeah, I wish), how is this treated for inheritance tax purposes, as the
shares are only valued at £1 each.

The shares used to be valued at £1 when you registered the company, but they
are now worth the value of the properties and would form part of your estate
on death.

You cannot transfer a share while you are alive without paying CGT. You are
stuck and must tread carefully! Take advice from a good accountant/lawyer if
money is at stake.

You need to make a will - but remember: "where there's a will, there's a
relative".

Yours faithfully,


John Aidiniantz

www.funbus.org
 
J

john boyle

Socrates said:
(yeah, I wish), how is this treated for inheritance tax purposes, as the
shares are only valued at £1 each.

The shares used to be valued at £1 when you registered the company, but they
are now worth the value of the properties and would form part of your estate
on death.

You cannot transfer a share while you are alive without paying CGT.
Yes you can. It depends on the figures involved and the time the shares
have been owned and to whom the shares are transferred.

You are
stuck and must tread carefully! Take advice from a good accountant/lawyer if
money is at stake.

You need to make a will - but remember: "where there's a will, there's a
relative".
TRUE!
 
J

john boyle

Shane Cook said:
Hi,

I own a limited company which holds a number of properties we rent out. The
company has a sole shareholder, myself, who is also the company director. If
I was to die, would the company share be treated as part of my estate, and
thus transferred automatically to my wife/daughter,
No.


or would I specifically
need to make a will to ensure this was the case?
Yes.



Supposing the the property company had a million pounds of property in it
(yeah, I wish), how is this treated for inheritance tax purposes, as the
shares are only valued at £1 each.
No, they are not valued at £1 each. That is just the 'nominal' value
which you may, or may not, have paid for them.,
If this generates an inheritance tax
liability, would having two shareholders in the company and simply revoking
the share of the departed director (myself) remove this liability?
No, but you could transfer some of the shares to your wife.

There are a number of ways round this depending on your own circs and
requirements, but you could start gifting some of the shares to your
children and hope that you live more than 7 years after the last gift,
transfer some to your wife, write a will leaving a sum equivalent to the
Nil rate Band to IHT on the date of death to a Trust and all other
assets to your wife who gives an IOU for the NRB to the Trust which is
empowered to hold that IOU as its sole asset. Etc., etc.,
 
G

GSV Three Minds in a Can

Bitstring <[email protected]>, from the wonderful person
Socrates said:
You need to make a will - but remember: "where there's a will, there's a
relative".
A beneficiary certainly, not necessarily a relative. (I'm thinking
'cat', 'cleaner', 'charity', and sundry other options which still beat
giving it to HMG).
 
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S

Socrates

Socrates
You cannot transfer a share while you are alive without paying CGT.
John Boyle replied:
Yes you can. It depends on the figures involved and the time the shares
have been owned and to whom the shares are transferred.

Hello - my statement refers to the poster who holds shares worth a £
million.

The time factor is irrelevant - if the shares have acquired a value since
their purchase, then CGT is calculated on that value, although I presume
you are referring to taper relief or some other time-related reducton
offered by the Treasury.

In a nutshell, the poster and every other taxpayer cannot give away their
assets without incurring a Capital Gains Tax liability, which is charged on
the diminution in wealth as well as a gain.

So if you have a £ million yacht or Cartier watch, you cannot just give it
away without being taxed!

This seems unfair if you have earnt money to purchase an item and have
already been taxed on those earnings.

One would think that one could be free to give an item away, or even to
destroy it, without any further tax liability.

There may be some exceptions if for example all the wealth/proceeds is
donated to a charity - but that is probably the only exception? - and not
many people want to do that.

Yours faithfully,

John Aidiniantz

www.funbus.org
 
J

john boyle

Socrates said:
Socrates


John Boyle replied:
have been owned and to whom the shares are transferred.

Hello - my statement refers to the poster who holds shares worth a £
million.
Hello - you said 'a share', you have no knowledge of the number of
shares in issue and therefore have no knowledge of the amount of the
gain per share. It could be quite feasible to sell one share and suffer
no CGT.
The time factor is irrelevant - if the shares have acquired a value since
their purchase, then CGT is calculated on that value, although I presume
you are referring to taper relief or some other time-related reducton
offered by the Treasury.
Er, yes, youve got it! possibly also indexation depending on dates. BTW
its the Inland Revenue, not the Treasury.
In a nutshell, the poster and every other taxpayer cannot give away their
assets without incurring a Capital Gains Tax liability, which is charged on
the diminution in wealth as well as a gain.
Balderdash, you may certainly obtain a Capital Gain, but that does not
necessarily mean you suffer a Capital Gains Tax liability.
So if you have a £ million yacht or Cartier watch, you cannot just give it
away without being taxed!
Of course you can, what if you paid £1.1m for it?
This seems unfair if you have earnt money to purchase an item and have
already been taxed on those earnings.
Agreed.

One would think that one could be free to give an item away, or even to
destroy it, without any further tax liability.
Well that is certainly possible.
There may be some exceptions if for example all the wealth/proceeds is
donated to a charity
For CGT purposes? Are you sure?
 
S

Shane Cook

Let me ask a slightly different question. Supposing I setup a NEW company
and issue one share to myself, one to my wife and one to my daughter before
the company has any assets. I then purchase property with the company. What
happens on the death of either myself of my wife with regard to IHT? It's my
understanding that the share that myself or my wife owned, prior to passing
away, now becomes part of the estate, and thus would be worth one third the
value of the property company at that particular person's death. Should the
share be passed either to wife or my daughter, it would be subject to IHT,
should it's value plus any other estate be more than 263K. Is this correct
and if so, is there a better way to pass the family business onto the next
generation, and then so on and so forth, without it being subject to IHT on
each new generation?

Am I correct in thinking that the shares in the property company should not
be held any individual, ie by anyone who would die, but by some other
structure, such as another company, a trust or something which doesn't 'die'
as such?

Kind Regards,
Shane Cook.
 
T

Tim

Socrates writes
"john boyle" wrote
Agreed.
If taxing a gain in value of an asset is "unfair", then surely it must also
be "unfair" to tax interest received in a bank a/c ........??

This also extends to rent received on property, etc etc.
 
T

Troy Steadman

Should the share be passed either to wife or my daughter, it would be subject to IHT,
<snip>

Your own link gives you:

"Anything that you give during your lifetime or leave on your death to
your spouse is completely free of inheritance tax, but both of you must
be domiciled in the UK."



--
 
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J

john boyle

If taxing a gain in value of an asset is "unfair", then surely it must also
be "unfair" to tax interest received in a bank a/c ........??

This also extends to rent received on property, etc etc.
Yes, in my view all taxation is unfair top some extent, but weve just
got to live with it!.
 
S

Socrates

john boyle said:
you said 'a share', you have no knowledge of the number of
shares in issue and therefore have no knowledge of the amount of the
gain per share. It could be quite feasible to sell one share and suffer
no CGT.

Hello - the poster is the sole shareholder with an assumed shareholding
worth £1 million.

In this context, the number of shares in issue is not relevant, as the
shareholding would be valued at this level whatever number of shares have
been issued - whether 2 or 100. If 2 shares have been issued, then each
share would be worth £500,000 - so it would not be prudent to give away even
one share because that would give rise to an immediate GCT which I think
would be payable within 9 months of the share transaction.
BTW its the Inland Revenue, not the Treasury.
The Inland Revenue banks its money with The Office of Paymaster General
which is under the Treasury, as far as I am aware. The Revenue is just a
collecting agent or more like a glorified bailiff working on behalf of the
Treasury. The Chancellor of the Exchequer is the Minister of the Treasury
Department which ultimately receives the money.

Yours faithfully,


John Aidiniantz

www.funbus.org


"in message news:[email protected]
 
J

john boyle

Socrates said:
shares in issue and therefore have no knowledge of the amount of the
gain per share. It could be quite feasible to sell one share and suffer
no CGT.

Hello - the poster is the sole shareholder with an assumed shareholding
worth £1 million.

In this context, the number of shares in issue is not relevant, as the
shareholding would be valued at this level whatever number of shares have
been issued - whether 2 or 100. If 2 shares have been issued, then each
share would be worth £500,000 - so it would not be prudent to give away even
one share because that would give rise to an immediate GCT which I think
would be payable within 9 months of the share transaction.
Hello- and if there were 1 million shares issued, they would be worth £1
each. This could have occurred if there had been a share split. You said
"You cannot transfer a share while you are alive without paying CGT" I
am saying you can because one share could easily be sold without
incurring any CGT.
The Inland Revenue banks its money with The Office of Paymaster General
which is under the Treasury, as far as I am aware. The Revenue is just a
collecting agent or more like a glorified bailiff working on behalf of the
Treasury. The Chancellor of the Exchequer is the Minister of the Treasury
Department which ultimately receives the money.
Its the Treasury who end up with the dosh, but they dont make the rules,
the IR does. You said " although I presume you are referring to taper
relief or some other time-related reducton offered by the Treasury." The
Treasury offers no such reduction, the Inland Revenue does.
 
S

Socrates

john boyle said:
and if there were 1 million shares issued, they would be worth £1
each. This could have occurred if there had been a share split.

Correct - but a most unlikley scenario in the real world - I can't think
what the size of the Company's Share Register would be with 1 million shares
issued!

There would be no earthly reason to divide up a private limited company's
shares into 1 million shares, and for most practical purposes 100 shares is
normally sufficient for dividing up between family members.

The time to divide up company shares is at the beginning of trading before
they have acquired any value - once trading begins and the shares are deemed
to have acquired a value, then it is not possible simply to transfer them to
others or to a trust without ultimately avoiding capital gains tax in some
form or other.

The Inland Revenue have come up with a few schemes involving reliefs and
deferred tax, but these are just tweaks for patching up a haphazard regime
for collecting tax.

A good accountant would be the best person to advise.

Yours faithfully,

John Aidiniantz
www.homepage-link.to/justice
 
R

Ronald Raygun

john said:
Huh? Of course it would be part of his estate.
It wouldn't be "transferred automatically" in the same sense as
"joint tenants" ownership, but see below.
It's never a bad idea to make a will, but if his wife and daughter are
his only close relatives, then under intestacy rules they *would*
inherit all his estate, so strictly there would be no need to make a
will purely in order to ensure they got his company, so long as he's
not fussed as to the proportions.
 
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J

john boyle

Socrates said:
each. This could have occurred if there had been a share split.

Correct - but a most unlikley scenario in the real world -
Oh I agree entirely, I was being very pedantic!
I can't think
what the size of the Company's Share Register would be with 1 million shares
issued!
Well it need be no bigger than with just one share issued, if they were
all issued to the same person.
There would be no earthly reason to divide up a private limited company's
shares into 1 million shares,
Oh yes there would, to avoid CGT as I have already described for
example. In fact I know of a few examples were private companies have
done this and passed small parcels of shares to family members on an
annual basis to avoid CGT and to keep within annual IHT limits.
and for most practical purposes 100 shares is
normally sufficient for dividing up between family members.
Yes, often with only one issued.
The time to divide up company shares is at the beginning of trading before
they have acquired any value - once trading begins and the shares are deemed
to have acquired a value, then it is not possible simply to transfer them to
others or to a trust without ultimately avoiding capital gains tax in some
form or other.
Youve lost me there.
The Inland Revenue have come up with a few schemes involving reliefs and
deferred tax, but these are just tweaks for patching up a haphazard regime
for collecting tax.

A good accountant would be the best person to advise.
!
 
T

Tim

... I can't think what the size of the Company's
Share Register would be with 1 million shares issued!
Perhaps just a single page, but with a number which has six zeroes?!! :)
 
R

Robert

Socrates said:
Socrates


John Boyle replied:
have been owned and to whom the shares are transferred.

Hello - my statement refers to the poster who holds shares worth a £
million.

The time factor is irrelevant - if the shares have acquired a value since
their purchase, then CGT is calculated on that value, although I presume
you are referring to taper relief or some other time-related reducton
offered by the Treasury.

In a nutshell, the poster and every other taxpayer cannot give away their
assets without incurring a Capital Gains Tax liability, which is charged on
the diminution in wealth as well as a gain.

So if you have a £ million yacht or Cartier watch, you cannot just give it
away without being taxed!


I believe the situation is: there is no CGT on death so 'giving' them
away by your will does not attract CGT. There will be inheritence
tax if you leave them to your daughter, but not if you leave them to
your wife.

Robert
 
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T

TonyJeffs

slightly off on a tangent, but a bit relevant:

We have a small amount of let property. If I die or decide to sell it
while I'm not dead, I will have to pay a lot of tax.
So I am toying with the idea of splitting it into say 100 shares, and
then giving the optimal tax free number of shares each year to my
children until they're able to fully utilise their individual CGT
alowances.
That way, along with my wife and offspring, we can offset 5 CGT
allowances against each house sale.

I have some homework to do...
I don't know if a limited company would be necessary, or advantageous.


(This is based on things suggested by people on this board)

Tony

P.S.
You can inherit an asset, but not a debt, so it makes sense to die in
debt(?)
 
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