Contributed by David Woolley, Croner VIP Tax Team
My clients own shares in a property investment company and are looking to decrease the number of shares they own in order to reduce their exposure to inheritance tax perhaps by gifts to their children. What are some of the options available to them?
As the company’s business is that of letting properties the shares will not qualify for business property relief (BPR) and so no specific reliefs are available.
A gift of shares to family members would be a chargeable disposal for CGT purposes, but no holdover relief would be available under TCGA 1992, s. 165 or TCGA 1992, s. 260 . This would also be a potentially exempt transfer for IHT purposes and so your clients would have to survive the gift by seven years for it to fall outside of their seven-year cumulation period. Paying CGT now rather than the children having to pay 40% IHT in the future (on a possibly higher value) can be considered. For CGT on a gift, the CGT payable can be paid in instalments over up to ten years, although interest will be charged ( TCGA 1992, s. 281 ).
Some shares could be gifted into trust and the gain held over ( TCGA 1992, s. 260 ). This would be a chargeable lifetime transfer for IHT purposes and so only transfers up to the available annual exemption and nil rate band would escape a lifetime IHT charge at 20%. However, this could be repeated every seven years after the transfers fall outside of the seven-year cumulation period.
A part shareholding will be valued in isolation for CGT purposes and so discounted accordingly. However, the rules of TCGA 1992, s. 19 regarding a series of transactions to connected persons is something to be aware of (see Direct Tax In-Depth at ¶519-250). Conversely, the potentially exempt transfer (PET) is based on the diminution principle of IHTA 1984, s. 3 and so the PET may well be larger than the actual value of the shares gifted.
Be wary of structuring a sale to a connected company as that may fall foul of the transactions in securities regime of ITA 2007, Pt. 13, Ch. 1 and so could result in an income tax charge rather than a CGT liability (see Direct Tax In-Depth at ¶763-000).
The issue of growth shares can ensure future growth is kept out of the personal IHT estates effectively limiting the value of the current shareholding. However, that will not take any existing value from the personal IHT estates. It is a fallacy that growth shares have no value when issued and so if this is pursued, professional valuation advice should be sought (see Direct Tax In-Depth at ¶529-860).
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Document downloaded on 24-04-2026 from Croner Navigate, the UK’s leading online research service for tax, audit and accounting professionals. Find out more at www.croneri.co.uk or call 0800 231 5199.
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