How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4971
Type Your Tax Question Here...
bigduckontax is online now

Inheritance Tax Planning. I presently own 52% in a hotel development

This answer was rated:

Inheritance Tax Planning. I presently own 52% in a hotel development (trading) company (build and operate). I wish to give away to each of my two children (one of whom is a working director) 20% of my equity - leaving me with 12%.
I have made interest-free loans to the company over the past 10 years which total c. £1.6m during which time there was no income - we have been building the hotel. Due to re-financing arrangements I expect to be re-paid these loan monies quite soon and have now turned my mind to charging a retrospective, commercial rate of interest covering the whole period.
So as not to create any cash flow problems I envisage this interest will be paid over an appropriate period of time and only, eventually, once the hotel has opened and when it is making sufficient profits.
I am concerned lest this planned, retrospective interest charge be viewed as altering the status of my gift of shares (presently protected by Business Property relief) into a "gift with reservation".
I look forward to receiving your advice and thank you.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your problem. The hotel company owes you money the repayment of which is outside the scope of UK taxation. It is only any interest paid on that loan which will be of concern to HMRC and such interest must be declared on your annual self assessment income tax return in the year of receipt. The delayed payment of interest does not constitute a gift with reservation. When you give away shares you create a Potentially Exempt Transfer (PET) in your Inheritance Tax (IHT) affairs. PETs run off over seven years at a taper and in the event of your demise within that period are added back to your estate for IHT. PETs are the first to suffer IHT and if your estate is insufficient to meet the IHT on the PET then the liability cascades down to the beneficiaries for immediate settlement. The classic defence against this is a reducing term life insurance policy. IHT is at 40% flat rate on assets over 325K, but this sum is inflated by any inter spousal or charitable bequests. Progressively from 2017 to 2020 the value your house left to your children will rose from 325K to 1m and relieve IHT still further. I do hope that you have found my reply of assistance.
Customer: replied 1 year ago.
Thank you for your response and, particularly, clarifying the position I explained in relation to a "gift with reservation" or NOT as you kindly confirmed. However, am I wrong in thinking that shares in a trading company are dealt with differently from, for example, an "investment" company? I had thought that shares in a trading company enjoyed a business property relief such that they could be given away, in life and after death, without fear of their value being re-introduced in the annual tax return or later in probate?And IHT relief is, I understand, currently £325,000 . . . . . but is this separate from the special relief on homes left to children or is it simply a combined relief which the government plans to increase over time to £1m?Thank you.
The 1m exemption being brought in 2017 - 2020 is specifically to preserve the family home for children. Business property relief may apply to the disposal of a trading company. Full details are available here: If you putlive the gift by seven years then your executors do not have to worry about the relief anyway. Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax and other Tax Specialists are ready to help you
Thank you for your support. Small amendment, paragraph 4, line 1; delete 'putive,' insert 'survive.'