I am familiar with the device of fixing the sale price of shares as £X or such other amount as HMRC shall agree to be their market value. Adjustments seem to cause no problems in practice.
I have encountered a device designed to make a gift of a specific number of shares (“the X shares”) or such lesser number of shares whose market value HMRC will agree is equal to £325,000. The settlor by deed declares himself trustee of the X shares on detailed discretionary trusts (excluding self and spouse from any benefit).
When HMRC have opined “it is agreed that the X shares shall have included from the date of this deed only” the number of shares whose value is equal to £325,000" and the [surplus] shares shall be held for the Settlor absolutely. Actual adjustment seems to raise many questions.
What is the trust property? X shares or the reduced number? When is the trust completely constituted, only when the number is ascertained? Is there a transfer of equitable ownership into trust and then back on adjustment? Can this be obviated by this purportedly retroactive redefinition of the trust property or is a “certainty” missing until adjustment? There is no maximum time limit set on HMRC’s reaching a valuation.
I am concerned by the date of the disposition for IHT and the value transferred, whether the revision of the number of shares is a reservation rather than a shearing operation, or a s65(1)(a) chargeable event and, if so, the rate under s68 as regards what may be the value of the property initially settled. How to fill in the IHT100 and 100a and when?
For CGT what is the date of disposal, what is disposed of and when and by whom, whether hold-over can be claimed, and does the adjustment cause the trust to be settlor-interested by a retained interest so as to deny hold-over relief? How to fill in the CG34? If HMRC agree in a later tax year which year should the gain or gains be returned and hold-over claimed?
This is not a DIY device but one offered to a lay settlor by a firm of peerless reputation without explanation as to how it actually functions.
Jack Harper