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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a director, with my sister, of a family investment company

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I am a director, with my sister, of a family investment company and we each own 100 shares. I , but not my sister, would like, if practical, to gift my shares to one or more of my adult children.
As things stand at the moment, I, as a possible future surviving spouse, would be well over the IHT threshold and so liable for 40% tax. Assuming my share in the company is approx.£300,000, it is tempting to try and save IHT on at least this part of my assets, on a reasonable prospect of surviving 7 years.
My uncertainty derives from the CGT implications. As we are an investment private company, I understand that the gift would count as a disposal for CGT purposes and I am not aware of any effective exemption/hold-over relief applying.
My question, therefore, is whether, on the above scenario, paying CGT now at 20%, due to the gift, makes sense in order to save a potential 40% IHT? If my son(s) were later to dispose of their share(s) I assume that they would be liable for CGT but on the basis of the value of the shares on the date of gift?
Hi. The gift would be regarded as a disposal for CGT purposes and your son's base costs for CGT purposes would be the value of the shares at the time of the gifts. Unless your company's activities can be classed as predominantly trading, then there really are no reliefs that you can take advantage of other than the annual CGT exemption. There is a good article on the subject here. I cannot tell you what makes sense for you and what doesn't. Only you can do that. Should you not live for seven years, your estate could face a 40% IHT liability as well as you having paid CGT at 20%. As the IHT exposure on gifts tapers away after three years (see here), you might consider taking out a term assurance policy with reducing cover to protect against an IHT liability. I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Thank you-that is fairly clear. But just confirm if my basic maths is correct ie if I survive 7 years, I save, on current rates, 40% tax by now paying 20% tax
Yes, you do and hopefully the company will be worth more.
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I was going on to say that if the gift of the shares was made in the seven years before your passing, the nil-rate IHT band would be used against that gift before any other assets held at death. IHT would then be charged on the balance. However, using the nil-rate band that way would expose other assets to IHT.