AdrianC wrote:I just re-read the above. I’m certain the shares in the private company do qualify for an exemption from IHT. I’m also pretty sure their value is included in the gross and net probate value. Does that make sense? There is only a £6k difference between gross and net. The company accounts available online show net assets of over £1m. Dad owned 42% of the shares. His shares won’t be worth 42% of company assets - there’s likely discounts applied due to lack of control and marketability. They are worth more than £6k, though!
Yes, the value of the shares would be included in the estate - the exemptions are applied after the vale of the estate has been calculated.
Although a minority shareholding would normally attract a fairly hefty discount that's not invariably the case - for example if someone held 45% of the shares and their spouse owned 15%, or if a sale of the company was imminent and its value had been agreed.
You should also be aware that shares in a private company will not always qualify for 100% relief. This is because of the `excepted assets' rule. In simple terms, an asset will only qualify for BPR if it had been used wholly or mainly for the purposes of the business in question, or it was required for future use for the purposes of the business.
The ‘future use’ test was an issue in the 1998 case of
Barclays Bank Trust Co Ltd v Inland Revenue Commissioners. The deceased owned half the shares in a company, the other half being owned by her husband. The company’s business was the sale of bathroom and kitchen fittings.
The company‘s turnover at the time of her death was approximately £600,000, but it held £450,000 in cash that was invested on a very short term basis. The executors claimed BPR on the full value of the company's assets but HMRC said that the company only actually needed £150,000 for its future use , and that the balance of £300,000 was not reasonably needed. It therefore determined that the £300,000 was an excepted asset, and did not attract any BPR - ouch!