Postby work.chill » Thu Feb 13, 2020 1:08 pm
Thank you for your responses above. Here is an update, although little has changed.
My mother in her early 70’s is in good health but still in the same situation.
Mother has a IHT zero rate band of £650k following death of spouse a couple of years ago.
Mother purchased her own house for the first time in Jan 2020.
As per the first post, if mother dies while owning her shares the IHT due on the shares will be greater than the value of all her other assets. The shares can’t easily be converted to cash to pay the IHT. All of the other assets would need converting to cash to pay the IHT, but even after doing this some IHT would remain. Then mothers estate would become insolvent.
So we explored ways of disposing of the shares before mother eventually dies (hopefully some time off):
1. The shares were offered for the other shareholders to purchase. They must offer the market value but they don’t have funds available or even the inclination to think about how it might be done.
2. Gifting the shares to charity (exempt from IHT) but articles of association prevent this.
3. Serving a petition of prejudice as posted above. Mother got a letter drawn up but has not sent it because the case is not clear cut and could easily worsen the relationship with the other side of the family. Mother has visited several solicitors, it takes time for them to get up to speed. They start with good intentions but haven’t been able to provide a clear route forward.
4. Put the shares into a trust, but we don’t fully understand how a trust would work or even if this might have IHT implications.
5. PET gift of the shares to mother’s grandchildren. It is possible that one day the nephews might want to purchase the shares so this could bring some value. With the 7 year rule, we thought a 7 year limited term reducing life insurance policy could be used to mitigate against the possibility of IHT. Due to mothers age the 7 year premium might cost £100k but in the scheme of things seems worthwhile. If mother can get a life insurance policy in place this is probably the route she will follow.
Another possibility might be to gift the shares to the fellow shareholders in family B, either:
1. Now by a PET.
2. In mother’s final will.
Questions:
If the estate becomes insolvent, what happens to the shares, where do they go and what effect would this have on the companies/remaining shareholders?
Is a PET eligible to a fellow share holder?
Is the beneficiary of a PET liable for the IHT rather than the estate? https://www.moneymarketing.co.uk/view-from/who-pays-inheritance-tax/
Would it be possible to leave shares in final will and stipulate the beneficiaries also pay any IHT due on the shares? https://www.accountingweb.co.uk/any-answers/iht-on-private-co-shares
If the beneficiaries are liable for the IHT but don’t pay, is the estate then liable?
Any other suggestions or comments are most welcome. We have been struggling over this for several years and it is causing anxiety to my mother.
Thank you.