Applying a little-used Inheritance Tax Act exemption has allowed our private client Cornwall team to save Inheritance Tax liability of over £880,000 for a client.

Shares in a holding company

Our clients’ father owned two successful companies held within a holding company. Their father’s Will created a life interest trust in favour of their mother for her life. The main trust asset was the holding company shares which were valued at over £3m. At this time there was no liability for Inheritance Tax.

After some years, our clients’ mother surrendered her interest in the trust in favour of her daughters who then became the owners of the shares in the holding company. Their mother died within seven years of this surrender and her estate was faced with the addition of £3m to the value of her substantial personal estate. The result was a massive Inheritance Tax charge of over £1m.

Phil Reed, Stephens Scown’s head of private client Cornwall was an executor of their mother’s estate. After applying Inheritance Tax reliefs, he managed to reduce this liability by over £200K. Phil then went one important stage further.

Exemption for Business Property Relief

Phil applied the little used exemption in s.105(3) of the Inheritance Tax Act 1984. The exemption relates to Business Property Relief (BPR) from Inheritance Tax.

Phil applied the test in HMRC’s guidance in their Share Valuation Manual (HMRC’s in-house guidance to their tax inspectors).

The test is a factual one. The activities, income sources and asset values of the parent and each of its subsidiaries must be examined to form a picture of the group business. HMRC need to be persuaded that none of the restrictions on the availability of the relief are present. These are complex and numerous. Having carried out this test, a claim was presented to HMRC and was entirely successful.

The outcome was that the final Inheritance Tax liability was reduced to just over £200,000, a saving to the estate and our clients of over £880,000.

Phil Reed is a partner and head of Stephens Scown’s Wealth Protection team in Cornwall. He can be contacted on 01872 265100 or email p.reed@Stephens-scown.co.uk