Failed PET unquoted shares

Trusts Discussion
1

I am advising a client on the prospect of making a lifetime transfer of unquoted shares in the family company. The business is currently one of trading such that it would be expected that business relief for IHT would apply if the gift became a failed PET.

However, it is likely that the company’s make up will change significantly so that the vast majority of its operation will become rental such that at some stage in the future the business relief would be lost, as the company will be one of holding investments.

If the donor dies within 7 years of making the gift it is my understanding that where a PET of unquoted shares fails, the only additional requirements are that the transferee just needs to retain the gifted shares until the transferor’s death, and they remain unquoted for the period, then business relief for IHT will still apply.

Is this also the case should the transferee die within the same timescale? Presumably, this will be subject to surviving for 2 years?

2

The rules are in s113A IHTA 1984. The originally gifted property (or qualifying replacement per s113B) must be owned by the transferee from the date of gift until the date of death of the transferor. If the transferee dies before the transferor the period is instead from date of gift to the date of death of the transferee. At the relevant date of death a notional transfer of the property (by the transferor in the first case or by the transferee in the second case) must still then qualify for relief except that there is no requirement for the relevant period to be at least 2 years long. If the donee dies one day before the donor, and the property still qualifies, relief is due.

Jack Harper