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Where Taxpayers and Advisers Meet

Disposal of Unquoted Shares by Life Interest Trust

Aidan Smyth
Posts:8
Joined:Tue Jun 06, 2017 7:17 pm
Disposal of Unquoted Shares by Life Interest Trust

Postby Aidan Smyth » Mon Nov 08, 2021 8:43 am

A client set up two life interest trusts about 20 years ago - one for each of his two sons. He settled 1/3 of the shares in his unquoted trading (retail) company into each trust retaining the remaining 1/3 for himself. The terms of each trust are such that all income is mandated to the beneficiary. The mother and father are the trustees of each trust. I can’t establish whether Gift Relief was claimed on the setting up of the trusts but imagine it was.

The sons are of an age where the father would like to disband the trusts and let the sons own the shares outright.

The company is provisionally valued at £700k in March 1982 and is worth about £1.8m now. Each trust would be liable to 1/3 of the overall gain at 20%.

Two questions:

1. Can the trustees gift the shares to the beneficiaries and claim Gift Relief on the transfers and wind up the trusts.

2. Are there any IHT traps that might be lurking that I should be aware of or that could trigger disapplication of Gift Relief?

Thank you in advance.

Aidan Smyth

AGoodman
Posts:1416
Joined:Fri May 16, 2014 3:47 pm

Re: Disposal of Unquoted Shares by Life Interest Trust

Postby AGoodman » Mon Nov 08, 2021 11:25 pm

I'm assuming its a pre-2006 interest in possession trust and has been interest in possession from day 1 (i.e. no initial A&M / discretion):

1. No s.260 holdover but I would have thought s.165 could be in play
2. No obvious traps for an outright distribution. It wouldn't be a transfer of value as the assets remain in the beneficiaries' estates.

Aidan Smyth
Posts:8
Joined:Tue Jun 06, 2017 7:17 pm

Re: Disposal of Unquoted Shares by Life Interest Trust

Postby Aidan Smyth » Tue Nov 09, 2021 6:19 am

Thank you - yes IIP from start in 2005.

Does it matter if further shares were added after 2006 as I think there were a few extra ones added? Will that make it a relevant property trust and subject to 10 year and exit IHT charges?

AGoodman
Posts:1416
Joined:Fri May 16, 2014 3:47 pm

Re: Disposal of Unquoted Shares by Life Interest Trust

Postby AGoodman » Wed Nov 10, 2021 4:21 pm

Yes, it will make those shares (and any property derived from them) relevant property so potentially subject to IHT on anniversaries and exit (depending on values and BPR).

It won't change the status of the assets added before 2006.


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