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DEATH, TAXES AND WRONG ADVICE

“Tis impossible to be sure of any thing but Death and Taxes,” wrote Christopher Bullock, The Cobler of Preston (1716).


Mary was told by her doctors to get her affairs in order, as she only had weeks to live. So she arranged an urgent meeting with her advisors.


She had owned 500,000 shares in the family company for many years and these attracted 100% business property relief from inheritance tax. Mary also had a £400,000 outstanding loan due to her from the company, on which there was no business relief.


A few days before her death, and upon advice taken, Mary did the following:

  1. She took up a rights issue under which she was allocated 400,000 further shares in the company, in satisfaction of her loan.

  2. She acquired further rights issues shares, which had been renounced by one of the other shareholders; and

  3. Subscribed for further shares in the company, paying £1,000,000 for them.

Due to the share reorganisation rules, the shares under 1 above, were equated with her original holding and accordingly attracted full relief on her death, despite only been owned for a few days.


However, the shares acquired under 2 and 3, did not qualify as they had not been owned for 2 years at the time of death, and a subscription of new shares do not qualify.


If Mary had been advised to acquire the holding under 2 and 3 above also via a rights issue, her whole shareholding would have been 100% exempt from inheritance tax on her death.

No doubt the advisers spent the next few months nervously checking the wording of their professional indemnity cover...


BASED ON A TRUE STORY.

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