Shares exempt from estate

26 October 2012 / Insight posted in

PP writes: My son and I are directors of a company and each own 50% of the shares. What is the inheritance tax position if one of us dies? Also, could I give my son all or part of my shareholding without incurring any capital-gains tax?

On the inheritance tax (IHT) front, both of your shareholdings would be covered by the Business Property Relief exemption. This means that on death the value of the shareholdings would not form part of your taxable estate for IHT. For this exemption to apply the company must not have any non-business assets in its balance sheet. For example, if the company has invested in property that is not used in the business or invested in the stock market this would jeopardise the relief. If you gave your son shares this would be chargeable for capital-gains tax. Any liability could be mitigated by retirement relief and business asset taper relief. If there was any gain left, this could be held over until your son made a disposal. However, the held-over gain would be calculated before any taper relief and your son would have to hold any shares transferred to him for a further four years to get the maximum taper relief. It may be worth leaving your shares to your son in your will because he would then acquire them at the market value on your death.