Inheritance Tax Planning for a Family-Owned Trading Company

IHT Planning

We took on a new husband and wife client with a trading company and some personal wealth.

They wanted to pass company shares to their son who works in the business.

Building the bigger picture

No inheritance tax planning case is the same which is why we take care to uniquely assess the details to fully understand the current situation and also the tax implications.

Company Accounts

Upon a review of the last company accounts we noticed there was an investment owned by the company – a residential property occupied by our clients’ daughter.

Transfers of trading company shares would usually qualify for hold-over relief, so that no capital gains tax is payable.

However where the company has chargeable non-business assets (such as property and shares) only part of the gain can be held over.

That meant capital gains tax would be payable passing the desired percentage of shares to the son.

Business Premises

We also discovered that the business premises was owned by the couple personally, rather than being in the company’s name.

That meant for inheritance tax purposes only half of the value was exempt rather than potentially 100% of the value if the property were owned by the company itself.

Personal Assets

The couple owned a holiday home which they wanted to gift to their children.

However gifting it outright would have triggered a significant CGT liability due to its increased value over the years.

Mitigating the tax due on the estate

With careful considerations the following actions were suggested and then implemented:

The couple borrowed cash funds from the company as a short-term loan.

They then gifted the cash to their daughter.

The company sold the residential property to the daughter

Daughter used the money gifted by her parents to make the purchase.

The company paid corporation tax on the disposal.

There was no Stamp Duty Land Tax payable as it was a first time home for the daughter valued under £425,000. That was the limit when the planning was undertaken in 2024 but please note the threshold decreased to £300,000 from April 2025.

The couple sold the business premises to the company

With their proceeds they paid off the loan and kept the remaining value in the company as a loan owed to them.

They can draw down on that loan as and when funds allow.

Although the transfer gave rise to a CGT liability, because we transferred a material amount of shares around the same time (see below) the gain qualifies for Business Asset Disposal Relief, meaning it was taxed at 10% rather than 20%.

SDLT was also payable by the company on the property purchase.

Company Shares were transferred to the son

With the investment now outside the company, the couple transferred a block of shares to their son.

No CGT to pay as the gains were held over in full.

The holiday home was gifted to a discretionary trust

Instead of gifting the holiday home outright we suggested putting the property into a discretionary trust for the benefit of the couples’ children and grandchildren.

That way the capital gain could be held over, even though the asset being transferred was not a business asset.

There was no SDLT payable by the trust.

The couple will need to pay a market rent to use the property, but that money can be used to pay the running costs.

The trust will be taxed on its rental profits at 45%.

However this income can be distributed to any of the beneficiaries and will be taxed at their top rates of income tax.

For example a grandchild with no other income would be able to claim back all income tax paid on a distribution of up to £12,570, making the rental income tax free in that scenario.

Was it worth it?

With all the planning transactions mentioned above, and taking into account the CGT, SDLT and professional costs involved in the planning and transaction, we managed to save our clients over £490,000 in inheritance tax. They also saved £14k in CGT through claiming a business asset disposal relief on the workshop disposal.

Of course the one condition of the IHT savings is that the couple survive 7 years from the date of transfers.

However thanks to the proactive approach of the clients in taking action sooner rather than later, we are very hopeful that they will.

Getting in touch

Inheritance tax planning is a useful tool in many different scenarios with the potential for huge tax savings on your estate.

If you would like to speak to us about our Inheritance Tax Planning Service, please call us on 01634 731390 or take the next step and request a call back and we will be in touch to discuss your enquiry further.