This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Lifetime gift of EIS shares - IHT treatment?

davidxt
Posts:26
Joined:Mon Feb 23, 2015 4:00 pm
Lifetime gift of EIS shares - IHT treatment?

Postby davidxt » Mon Mar 13, 2017 1:03 pm

A relative aged 95 invested in an EIS scheme a little over two years ago. The value of his assets, ignoring the EIS investment, will mean that his estate will be liable to IHT upon his death.

The EIS investment is now free of IHT, however the scheme's design is that it will wind-up after four years, and proceeds will be redistributed as cash to investors. Should he survive until that date - and there is no immediate reason why he should not - this cash will of course become part the estate once again fully exposed to IHT.

To benefit from the current IHT status he wishes to make a lifetime gift of the shares to the beneficiary of his will (however because he obtained income tax relief on the investment he will in fact wait until three years after their issuance in order to avoid claw-back).

Is he right in thinking that in the case of a lifetime gift of EIS shares that are 2+ years old, the gift's IHT exemption is preserved? Putting it another way, upon his death will the normal 7-year rule not apply, and the value of the gift will not need to be counted in a list of potentially exempt transfers made in that period?

I have researched around and it does seem that this is the case, but I would appreciate anyone could confirm, or point me to some official reference to this matter.

AGoodman
Posts:1418
Joined:Fri May 16, 2014 3:47 pm

Re: Lifetime gift of EIS shares - IHT treatment?

Postby AGoodman » Mon Mar 13, 2017 2:17 pm

Would it not be caught by s.113A if he were to die within 7 years of the death (and the investment had been encashed)?

If so, as the transferee's assets were no longer subject to BPR, I would expect IHT to be payable on the death.

AG

davidxt
Posts:26
Joined:Mon Feb 23, 2015 4:00 pm

Re: Lifetime gift of EIS shares - IHT treatment?

Postby davidxt » Mon Mar 13, 2017 4:42 pm

The intention is to gift the EIS shares themselves, that is, to do so prior to their being encashed by the wind-up of the scheme.

AGoodman
Posts:1418
Joined:Fri May 16, 2014 3:47 pm

Re: Lifetime gift of EIS shares - IHT treatment?

Postby AGoodman » Tue Mar 14, 2017 1:19 pm

Yes, but under s.113A the position is retested on the death of the donor within 7 years. If the donee no longer holds the assets that attracted BPR on the gift (or replacement BPR assets) then the original gift falls back into charge on the gift and death (usually with the effect of reducing the donors nil rate band).

AG

davidxt
Posts:26
Joined:Mon Feb 23, 2015 4:00 pm

Re: Lifetime gift of EIS shares - IHT treatment?

Postby davidxt » Fri Mar 17, 2017 11:28 am

I see. That would mean no IHT benefit in gift of this asset since it is going to turn into cash after year 4, whoever the owner is.

Thank you for this help, much appreciated.


Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”