BPR and Keyman policy

I have a client who is a joint share holder of their company with 3 others. It is a trading company. On the death of any director, there are life policies that pay out a fixed sum to the surviving directors to purchase the Decd’s director’s share from their Estate. Company Articles say that the estate has to sell the share and offer to the surviving Directors first - Surviving Directors do not have to accept but in all probability will.

Can this arrangement be considered an option thus making the share eligible for BPR?

I think not because the life policy automatically pays out to the other Directors on death.

Does anyone disagree?

Michael Micklethwait
Beviss and Beckingsale Solicitors

It comes close to the line but I don’t think the arrangement as described would constitute a binding agreement for sale under s.113 as nobody (including the directors) is obliged to buy.

IHTM25292 states that “Only most exceptionally does such an agreement constitute a binding contract for sale within IHTA84/S113” and the three criteria it sets out require that the PRs must be obliged to sell and the other directors must be obliged to buy. Your scenario does not appear to meet the final requirement.

The other directors are free to retain the insurance proceeds as a windfall.

Andrew Goodman
Osborne Clarke LLP