IHT and close companies
Produced in partnership with Katya Vagner of PwC
IHT and close companies

The following Private Client guidance note Produced in partnership with Katya Vagner of PwC provides comprehensive and up to date legal information covering:

  • IHT and close companies
  • Liability
  • Definition of close companies
  • Companies excluded from being close
  • Exemptions
  • Charge to IHT
  • Charge on participators
  • Alteration of share capital of a close company
  • Special rules applicable to trustees

When looking at the definition of chargeable transfers and transfers of value in the Inheritance Tax Act 1984 (IHTA 1984), it is perhaps not immediately apparent that inheritance tax (IHT) is not only chargeable on individuals. The wording of the sections in IHTA 1984 refers to:

  1. 'transfer of value which is made by an individual'

  2. 'disposition made by a person'

IHTA 1984, Pt IV introduces two deeming provisions into the legislation whereby, firstly, transfers of value made by a close company are attributed to the company’s participators and, secondly, alterations in the company’s share (or loan) capital or the rights attaching to them might also involve a disposition chargeable on participators.

Practitioners should, therefore, be aware of this transfer of value pitfall when considering tax planning involving a close company.


There are three main areas when gifts to or from companies can result in an IHT charge:

  1. gifts to companies

    A gift to a company may constitute a chargeable lifetime transfer because it does not constitute a potentially exempt transfer (PET). That means that this may result in a lifetime charge to IHT at 20% on the value of the gift, more accurately defined as the loss to the donor’s estate. Subsequently, if the donor fails to survive for the requisite seven years from the date of the gift, the value