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

The following Private Client practice 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
  • Participators
  • Control
  • Directors
  • Associates
  • Loan creditors
  • Companies excluded from being close
  • Exemptions
  • More...

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.

In its January 2020 ‘Reform of inheritance tax report’, the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness has made a number of recommendations for the UK government to reform the current IHT regime. At this stage, no express recommendations have been made in respect of the application of IHT to close companies discussed in this note and it remains unclear if or when the report will be considered or implemented.

Liability

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

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