Business owners urged to think carefully before gifting company shares to family

Currently BPR and APR provide an 100% exemption from IHT for assets that meet a number of qualifying conditions (the relief is restricted to 50% for certain assets, including controlling holdings of quoted shares).

Although the draft legislation has not yet been released and a consultation is imminent as to the application to trusts, the proposals are expected to cap the amount of relief available. This means that we anticipate that the first combined £1 million of APR and BPR qualifying assets will be exempt from IHT and the rest will attract 50% relief. Also, qualifying shares which are designated as ‘not listed’ on the markets of a recognised stock exchange (such as those listed on the AIM market) will qualify for a maximum 50% relief, down from the current 100% and will not be eligible for the £1 million exemption.

In light of the changes, many people are considering whether now could be the time to pass their shares in their trading companies on to the next generation of their family to reduce the IHT exposure on their death.

It is important for business owners concerned about the impact to take a step back and consider the bigger picture before gifting shares. This should include consideration of the fact that there are also expected to be anti-forestalling provisions that will bring some transfers made on or after 30 October 2024 within the scope of the new rules, so care is needed to avoid unexpectedly falling foul of these.

Equally, people may have a feeling that they need to do something and the concentration has been very much on shares in a company, however that might not be the right thing to focus on. Important decisions should not be made just for tax reasons. If people did not think of gifting shares to their children before then it may just be the IHT changes driving their current thinking. There must be other reasons why they have not given the shares away previously, and these reasons may still be valid.

For example, if it is a family company, is now the right time for the next generation to take control of it? They might be facing issues such as an impending divorce or financial difficulties that the current owners might not be aware of or they may not have the experience needed, potentially then leaving the business susceptible to problems. At the same time, the current owners might well need the income or capital value, such that gifting their shares might not be the appropriate thing to do.

For some people, it is definitely worth considering options such as making gifts of shares to trusts or individuals, but this may not be the right solution for everyone. Before giving shares away, the implications need to be understood.

In addition, they should also consider their other assets. This might include giving away something that is a bit simpler and does not generate any income, or that would not benefit from any IHT relief.

The first step should be to seek professional advice that considers the full picture, particularly with regard to the impact and exposure of IHT changes and BPR/APR implications.

We are here to help

Whatever your circumstances, estate planning is crucial, particularly with the inheritance tax changes coming into force. Our specialist team have significant experience in helping individuals manage their inheritance tax exposure efficiently. If you’re concerned about how the impending changes may impact you or have any questions around managing your assets, please get in touch.

The information contained within this insight is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

Lyn Newbury

Director at Azets

Lyn.newbury@azets.co.uk