A question regarding BPR:
T owns company, X Ltd. X Ltd is the sole shareholder in a property investment company, P Ltd.
On T’s death in 2009 an application for BPR was made and, after negotiation with HMRC they agreed that 60% of the value of X Ltd qualified for BPR, but that 40% (in effect, the value of the shareholding in P Ltd) did not.
T’s Will was varied to pass the BPR qualifying shareholding to a non-exempt beneficiary, with the remainder thereof passing to the Spouse and thus gaining spouse exemption.
My question is this. The shares that passed to Spouse clearly each gave an entitlement, through holding them, to a share of P Ltd. Now that Spouse has died, can/should BPR be claimed on X Ltd in the same manner as previously? For our purposes the value of X Ltd and P Ltd remains the same.
How can shares pass on T’s death to a non-exempt beneficiary using the whole of the BPR, with the Spouse only inheriting the shares that did not qualify. The shares were of the same class, so how could there be a distinction.
Any comments gratefully received - even if those comments amount to seek counsel’s advice!
Damian Lines
Rubin Lewis O’Brien
The deed of variation can only deal with property in the estate (shares in X Ltd) not the underlying shares (in P Ltd). So in a situation like this it is not possible to vary the estate to pass 100% relieved property to non-exempt beneficiaries and 100% chargeable property to the spouse. It would be normal, for example, in a case like this, for the partially relieved property to be given to the non-exempt beneficiary to the extent the value chargeable to inheritance tax thereof was within the available nil rate band (leaving any surplus to go to the surviving spouse). What you say brings into question whether the terms of the will, as varied, were correctly implemented. On a correct interpretation of the deed of variation it might in fact be the case that the surviving spouse was entitled to all of the shares, and the non-exempt beneficiary none.
Paul Davies
DWF LLP
I think the answer will be to seek Counsel’s advice.
It may have been possible to have altered the shares in X Ltd in order to carve out the relevant issues - it is a procedure frequently used on corporate demergers.
As Paul Davies says, on the wording above the shares did qualify for BPR, albeit not in full as there was value removed due to s.111 IHTA 1984. If the Deed of variation passed the BPR qualifying shareholding to the non-exempt beneficiary, that would at first glance be all of the shares in X Ltd as all of them qualified in part.
Stuart Maggs
Howes Percival LLP