Life interest in business

Dear forum members,

Appreciate if any forum members provide some guidance to the below request made by my client.

My client, who is the sole shareholder and director of a UK limited (trading) company wants to give life interest to his partner in his business upon his death and then transfer shares to both sons in equal numbers. (Company adopts model article and registered in 2013). Trustees will be partners and both sons. However, the partner will not involve in the day-to-day operation of the business.

He is also holds 80 % of residence (TIC with his one son) and wants to give life interest to his partner and then to both his children.

I am only concerned about the passing business interest as I have never encountered such a request in the past.

Is it possible to give life interest to business?
If possible, whose name shares will be registered upon the death of the client, and who can act as directors?
What details I should cover in the Last Will to ensure no future tax issue related to the income?

If the above is not feasible any other options the client got to pass income to the partner?

Hasan Ghaffoor

Looks to me that the client probably has in mind to give the partner a life interest in his shares of the company, with those shares passing to the sons when the partner dies, or the trust terminates.

The trustees will hold the shares whilst the life interest subsists and can appoint directors (the sons?) to run the day to day business. The partner’s interest need extend no further than receiving dividends on the shares in trust.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

When the shares of a trading company are settled (in lifetime or) by will the beneficiaries of the trust and the family members that run the company and its business may not have identical financial interests. The trustees and beneficiaries will be interested in dividends and the prospective sale value of shares whereas the directors/executives will be interested in remuneration package, including pension. Unless the latter are happy the former may not have much, or as much, to enjoy. They may be beneficiaries too but sometimes there is a degree of separation. Children A and B or a surviving spouse may benefit under a trust while child C, who may or may not also be a shareholder, runs the company as his/her main source of income. The trustees and C may not always see eye to eye about where the company is going.

While it is perhaps desirable for the testator/testatrix of a will trust not to be too prescriptive, and try to rule from beyond the grave, trustee shareholders may usefully be given, and may welcome, a non-binding letter of wishes addressing in principle how these interests may be balanced in the most likely foreseeable events. Encapsulating the wisdom and judgment that might have been sought (or imposed!) by the deceased who can no longer provide it. Such a letter frequently addresses general balancing among siblings, especially as regards “equalisation” and consideration of special needs and differentials in their individual resources and commitments.

Jack Harper

Assuming Paul’s assumptions are correct then thought needs to be given to ensuring any BPR is not lost/wasted (eg shares left on death to surviving spouse).

I assume “partner” means spouse or civil partner.

Malcolm Finney

Thanks, Paul, Jac, and Malcolm for your valuable input.

The testator is co-habiting.

My query is the practicality of passing the life interest of shares to a partner. The life tenant is only entitled to dividends, but I assume the shares have to be transferred to the trustee’s name. Please correct me if I am wrong.

Does Company House allow the shares to be held by more than one trustee as a bundle of shares on behalf of the life tenant rather than individual shareholders owning the specific number of shares ( normal circumstances)?

Wonder who will be treated as a person with significant control in the above scenario.

Appreciate, any valuable thoughts from forum members to the above queries.

Yes, the shares will need to be transferred into the trustees’ names, or to their nominee.

Many company shares are held in the joint names of trustees, including where the trust holding confers “significant control”, so this is unlikely to be an issue for Companies House so long as that is not in breach of the company’s M&AA.

This could be a good time to review the M&AA to make sure that they do not undermine intended terms of the will.

I will leave it to others more knowledgeable on the issue to comment on who will be deemed to be the person(s) with significant control.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

The trustees are not registrable as PSC’s in their own right as they are not “individuals” for the PSC legislation. If the 25% threshold of shares/voting rights is crossed, or the shares otherwise carry the right to appoint/remove the majority of directors, it will be necessary to determine whether any individual has the right to exercise or actually exercises significant influence or control over the trust.

Unusually this is further to be interpreted in statutory guidance at PSC requirements for companies and limited liability partnerships - GOV.UK. “Company statutory guidance” is essential reading and Parts 5 and 6 are key. Although a settlor or beneficiary could be a PSC it is unlikely to be so if the trustees are independent and act like it.

Despite the statutory basis the guidance is explicitly “non-exhaustive”. This means it is like a statutory definition of a term which uses the word “includes” rather than means. It is quite possible for a company to be controlled or wholly owned by trustees without the company having a PSC.

Jack Harper