Passing the family back a generation

Conventional wisdom dictates that family businesses are passed down the generations but doing the opposite may be counter intuitive, but it can pay off.

Take the person who starts a trading company with £100 and builds it into a business worth several million. Selling out would mean them paying Capital Gains Tax on those millions.

What if, instead, the person transferred shares to the next generation? There would be no CGT to pay, but because they acquired the shares with a base cost of £100, if they choose to sell out they face a similar CGT bill.

If the next generation were smart they’d be in less of a hurry to sell out. They should refuse the shares and, instead, inherit them on their father’s death,

Assuming the company is still worth several millions, on death the shares are rebased to current value; no CGT and, moreover, no IHT.

If mother is still alive, even better. The next generation sells the shares back to her at probate value, receiving as consideration part of her estate that might otherwise attract IHT.

When mother and father are reunited, the shares are inherited for a second time free of IHT – plus a large slice of her estate has already passed down, tax free.

Of course there are time limits to be observed and I’ve made certain assumptions about longevity; but if saving tax is important to you, now might be the time to tear up the rule book.

Graham Wilson
Corporate Partner
Beever and Struthers