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Where Taxpayers and Advisers Meet

Using a Trust to hold Holding Company Shares

austin397
Posts:2
Joined:Thu Feb 03, 2022 2:02 pm
Using a Trust to hold Holding Company Shares

Postby austin397 » Thu Feb 03, 2022 3:04 pm

Hi.
I am hoping there is some advice around.
I have property investment companies ( started off developing and putting profits into assets, now assets outweigh developing - so no possibility of Business relief I think) all shares are owned by a holding company. Shares are split 40% me, Husband 6%, child 1 has 29%, child 2 has 25% and child 3 has none. No shareholders benefit from the companies ever, only those who work for it and are paid through PAYE. I manage everything internally and take pride in providing homes and jobs. I have no intention of selling anything in order to sit and do nothing, this is my passion.
I am looking to get things in order to reduce my exposure to potential children's spouses/partners and reduce the need to possibly sell a big chunk of assets to pay IHT,
I already hold a comprehensive shareholders agreement, but this does not help with taxes. and could possibly be contested. ( This issue has not arisen but I am mindful of it)
1. Would a trust be a beneficial way to go to hold the holding company shares?
2. Would it be worth slowly transferring shares to child 3 at his CGT free yearly allowance? However could this mean that the shares would yearly need to be revalued professionally or is there a rule of thumb?
3. For tax planning is there a beneficial split of shares, although I think I would need to be able to hold the largest holding.

Many Thanks

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Using a Trust to hold Holding Company Shares

Postby AGoodman » Mon Feb 07, 2022 12:20 pm

1. You could transfer shares to a trust but the trust itself doesn't provide an IHT advantage. The IHT saving comes from giving the shares away - the trust just lets you keep a measure of control over them rather than giving control to your child. Once given away (directly or to a trust) you cannot benefit from them.

2. If you give shares away, you make the gain, not the child. A gift would use your annual exemption, not your child's.
3. Valuation often turns on control and it sounds like you've already given away control.

Two further thoughts:
1. You really need to take proper advice on this
2. Bear in mind the "gift with reservation of benefit" rules. If you are extracting all the profits as PAYE, you need to be confident you can justify those salaries as reasonable for the work done.

austin397
Posts:2
Joined:Thu Feb 03, 2022 2:02 pm

Re: Using a Trust to hold Holding Company Shares

Postby austin397 » Mon Feb 07, 2022 6:28 pm

HI AGoodman.

Thank you for taking the time to reply. Much appreciated.

Profits are not being extracted at all, market wages only are paid (and probably under that) and all profits go back into the companies.

The IHT saving comes from giving the shares away - the trust just lets you keep a measure of control over them rather than giving control to your child. Once given away (directly or to a trust) you cannot benefit from them.

If the shares where transferred to a trust - is that not giving them away? ( All shares held by the 4 of us to be in the trust)
If no dividends are paid and standard salaries paid then does that not constitute receiving No Benefit.

The trust would hold the holding companies shares so the underlying companies would still be managed by their Directors, therefore I am assuming business as normal for day to day business.
Yes I do need to take proper advice - but therein lies the problem, finding the correct person.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Using a Trust to hold Holding Company Shares

Postby AGoodman » Wed Feb 09, 2022 6:26 pm

Yes, transferring them to a trust is giving them away. What I meant is that the existence of the trust doesn't provide a magic tax saving. You would get the same tax saving giving the shares directly to your children.

If you give your shares to a trust you can't be a beneficiary of that trust - or if you do, there is no tax saving - they are deemed to stay in your estate for inheritance tax.

Equally, I would be very wary of suggesting that your children transfer their shares into trust - that would serve little purpose, use of part of their nil rate band and if the shares were valuable (e.g. over £325,000) there would be an upfront charge to IHT.


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