Mitigating new IHT on businesses.
Discussion
The intended IHT on businesses affects me and the person that was due to inherit my business. So I have been thinking of ways around it. Two alternatives spring to mind. In this, note that I no longer draw dividends so don't 'need' to be the owner any more. The business is currently valued at say £1.6m and this will increase to £2m next tax year.
Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Afaik,
Gift hold over - got to be careful of gift with reservation rules. If you want to stay on as an employee or director, I'd assume you'd need to demonstrate you'd given over and no longer hold any controlling influence over the company. Also, you can't replace previous dividend income with a new salary etc.
BADR - again, be mindful to comply your disposal needs to be substantial. If you want to carry on in the business, I'd take professional advice to make sure - there's no prior approval process and HMRC have 2 year to query the claim
Gift hold over - got to be careful of gift with reservation rules. If you want to stay on as an employee or director, I'd assume you'd need to demonstrate you'd given over and no longer hold any controlling influence over the company. Also, you can't replace previous dividend income with a new salary etc.
BADR - again, be mindful to comply your disposal needs to be substantial. If you want to carry on in the business, I'd take professional advice to make sure - there's no prior approval process and HMRC have 2 year to query the claim
Rufus Stone said:
The intended IHT on businesses affects me and the person that was due to inherit my business. So I have been thinking of ways around it. Two alternatives spring to mind. In this, note that I no longer draw dividends so don't 'need' to be the owner any more. The business is currently valued at say £1.6m and this will increase to £2m next tax year.
Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Your accountant needs to factor everything into account to be able to give you advice as there are lots of moving parts.Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Is the person a family member or an employee? If an employee, both of your options would almost certainly bring the employment related securities legislation into play. The value of the shares would be taxed as employed income on the recipient.
Rufus Stone said:
The intended IHT on businesses affects me and the person that was due to inherit my business. So I have been thinking of ways around it. Two alternatives spring to mind. In this, note that I no longer draw dividends so don't 'need' to be the owner any more. The business is currently valued at say £1.6m and this will increase to £2m next tax year.
Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Speak to a proper set of accountants familiar with your line of business (maybe your current one is fine), it is too bigger a sum and too much to get wrong just asking an internet forum, many different angles to consider. Good luck!Gift Hold-Over Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at face value. The gain and potential CGT and IHT is passed on to someone else. Essentially the issue is deferred for potentially decades. I can remain a Director.
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Any thoughts welcome. Please don't make this personal. Technical and practical advice needed.
Rufus Stone said:
Business Asset Disposal Relief
This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
We (five of us) sold our company last year and will use BADR. Everyone stayed on as an employee and several of the guys invested part of their proceeds in a new holding company which now owns our old company. I took the opportunity to retire but the others all stayed on.This appears to be a mechanism of gifting the shares including the intrinsic gain in their value to someone else at market value. I would be liable to tax at currently 10% (increasing to 14% next tax year and 18% the year after) on the value of the shares up to £1m, and standard CGT thereafter. I believe I would need to cease to be a Director but not sure whether or not I can remain an employee.
Strikes me that this isn’t the same as passing the firm on in the way you described - they’ll have to buy it, so have they got, or can they raise, the funds to do it at market value?
As a fall back, we looked at an EOT, but we had a problem with shareholder to employee ratio - we didn’t have enough employees, although it was suggested that wasn’t a show-stopper and could be worked around, but we didn’t need to get further into it in the end. You were talking about selling to one person, IIRC all employees have to offered participation?
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