Deceased died intestate owning relevant business property capable of relief at 100%. Statutory legacy to wife with residue (after variation of part) two thirds to wife one third to minor children.
The deceased had a significant director’s loan account back to the companies that will be repaid.
This results in numbers that appear to end up with the outcome of no IHT due when I would otherwise have expected IHT due to the ‘loss’ of some BPR as this set against the spouse’s exempt share.
For example:
gross estate is £10m
BPR property is £8m
director’s loan is £4m
net estate is £6m
As the net estate value is below the amount of BPR being claimed, even with apportionment to the spouse’s statutory legacy and then between the residuary elements, BPR appears to cover the estate meaning no IHT due. Or am I missing some sort of ‘cap’ to the available BPR or how s.39A works?
(for the purpose of the question, please assume any issues of excepted assets for the director’s loan etc have been considered)
[EDIT - or is the answer in s.104(1) and there is an apportionment of the residuary estate to reflect how much of that derives from the relievable property.]
Are you saying the company owes him £4m, or he owes the company £4m (as in estate gross £10m, less £4m owed to co, net estate £6m). So BPR of £8m will possibly be restricted as cos will have £4m cash when loans repaid?
The value of the companies will not be increased when the loan is repaid unless the loan value was discounted on the balance sheet (eg as possible bad debt). The assets held will simply show cash £4m instead of debt owed to co of £4m.
If he owes the co, has he paid tax on the loan https://www.gov.uk/directors-loans/you-owe-your-company-money and will the estate get some back when the loan is repaid? The accountants should be able to tell you. I suggest you contact them if you haven’t already done so.
The liability of £4m is one of the administrators to the company. The benefit of that loan has been taken into account in the valuation of the company and let’s suspend disbelief at the moment that the loan sitting in the company does not upset the BPR analysis.
Perhaps instead I should have phrased the question as:
gross estate £10m
BPR property £8m
liability of estate to third party £4m (let’s say they are unconnected and not the company)
net estate £6m
If that estate was divided 50/50 between spouse and child (no pecuniary or specific gifts)
£3m to spouse exempt
£3m to child
They would each also share the BPR - but what would that amount of BPR be? Would they share the total BPR of £8m so £4m each and no IHT at all. Or is it some lower amount of BPR to reflect the overall split of the gross estate value to relievable/non-relievable assets?
