Newsletter Autumn 2014

IHT traps

The net value of what you own when you die is subject to inheritance tax (IHT), subject to a number of reliefs and exemptions. Shares in private trading companies usually enjoy one of those reliefs: a 100% deduction applies even if you hold shares in a non-trading holding company which in turn owns the trading company.

However, if the trading company shares are held through a partnership or Limited Liability Partnership (LLP) in place of a holding company, the IHT exemption does not apply. This is a strange anomaly which HMRC acknowledge, but is not going to change.

Family companies can fall into this trap if the business uses a property which is owned outside the trading company by the shareholders. Where the property is held directly by the individuals it will qualify for 50% relief from IHT, but if it is held through a LLP no IHT relief will be due.

Let us review how you hold your shares and properties to ensure the maximum IHT relief will be available.