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  • Tax

    Value of a Company on death

    I would like to ask the opinion of members

    How is the price of your Ltd Co valued at death for IHT purposes ?

    Assumptions:

    Company owned by a sole director with 100 shares

    Value of property in the company £999,999

    Mortgages £499,000

    So how much are the shares worth at death of the sole director ?

    What are your thoughts guys ?

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    What is the inherit CGT on disposal?

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    im not sure  what you mean ?

    Can you expand on that please

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Sure. Let's compare buying the property as an individual and buying the company.

    If I buy the property (as an individual) then my base cost is my purchase price and I pay CGT on the increase at the applicable rate.

    If I buy the company then my base cost is not what I paid (as I bought shares with that) but the price the company paid for the property. Therefore assuming the property rose in value during the company's ownership before I got involved there would additional CGT to pay (by the company).

    So in conclusion, if the property has risen in value there needs to be a calculation done of what the CGT would be if the property was sold. No buyer would buy the property at a market price (based on comparables) to then pay more tax that their neighbour.

    Investment trusts used to trade at large discounts because the increases in their asset market value needs to be adjusted by the tax on this increase (even though not due until sale) - accounting rules have got better at recognising this over the years.

    You need to also take of any other liabilities - usually a group question but also annual CT to the date of sale.

    If you wish to be clever about this you can also make an argument that the buyer cannot get his hands on the property / income without additional extraction tax and so reduce the company value accordingly. It would really depend on the likely buyer as a corporate buyer won't face the same issue.

    Although fairly simple for a property company, valuations are still an art not a science. It is worth what someone will pay - that's as scientific as it gets (almost).

    When I do probate work there is often a major cashfow issue (Tony will jump in here!) to pay IHT. This is because selling the property triggers usually CGT and then paying the remaining funds (after tax and mortgage) to an estate trigger estate income tax. So a lot of assets are sold to fund the IHT bill. It is one of the reasons why incorporation needs to be thought through and is not for everyone (I advocate a case by case approach depending on people's circumstances and objectives).

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Thanks for the reply

    The point I am driving at here is If the Sole director passes and there will gives the shares to say a son

    how much IHT is charged by HMRC 

    To keep this simple they have other assets worth 500K so the estate is in IHT


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    IHT is not that simple. It is not a death tax but a lifetime transfer (ie gift) tax with the last gift on death.

    The nil rate band (equivalent of the personal allowance) is affected by lifetime gifts and the spouses position. To the extent the value is in excess of the estate IHT will be 40% of the excess (ignoring the charity angle).

    You need to seek advice from someone who knows the tax and ideally probate work so you can see how it would work. This is an estate planning exercise and highly recommended particularly if the estate will result in a high IHT bill.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    The tax implications are way beyond me, but if I were looking at buying a property company for me it’d have the value of its assetts and the profits it makes. But there’s the rub, The assets are pretty easy to value and a set of accounts pretty easy to understand, but the profits made in such a business are a result of how the company is run.

    from what you’ve posted in the time i’ve followed the site, you are very personally invested in your company, do much of the work yourself operate on a model of investing in the quality of your property and keeping your tenants happy whilst at the same time choosing not to be hard nosed when it comes to rent.

    your accounts could be flattered very essily by squeezing tenants for rents as far as possible, keeping maintenance and repairs to a bare minimum and holding every cost down as far as possible. More than likely not the sort of business you want to run but one which would maximise its worth to a potential purchaser.

    its like the asset strippers that buy companies and force up profits by cutting back on investment, training, maintenance, employee benefits, using up inventories of spares and materials. Superficially it looks as though the company has increased profits massively on the back of its new management when in fact its been turned into a basket case pretty much doomed to fail or at least have much reduced profits as the business is put right.

    much of the value in many small businesses is the owner, on their death that value is gone.

    i have a friend that built up a very successful business in the print industry but he was effectively its sole asset, his contracts being the result of personal relationships built up over many years with customers and suppliers, the only way he could sell the business would have been to become an employee of the new owner, this had no appeal, so he spent the last 18 months of trading winding things down helping his customers find new suppliers  and vice versa, wound the company up and retired.

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    Philip, a property business's value is based on its assets which derive the property profits. Looking at both would double count. A printing business is a mixture as it has a set of operations to manage which utilise an asset. However the asset is less static and so one would look at the profits more closely and adjust for asset quality (eg replacements). Your friend suffered from a common issue. If all the IP/goodwill sits with the owner then when he goes there is nothing left. Selling a trading business means that the business needs to be in a position to carry on without the owner (ie post sale). This is why is usually takes time to prepare for a sale/exit.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    Cheers, i’ll follow this thread with interest, not that it’ll be likely to affect my position, at least not as things currently stand.

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    I don't know the answer either, but to add to the mix what happens regarding IHT if the director gifts shares to the beneficiary during their lifetime?

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    Gary, directors dont own shares; shareholders do. If a shareholder gifts then it is potentially a chargeable transfer depending on the circumstances. Usually its a PET but not always.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022