PETs from and to Companies and Partnerships

I am acting in the administration of the estate of a deceased person who had a number of companies, and was also the partner in one partnership with his girlfriend. The companies were all held in various percentages.

The deceased made lots of gifts in his lifetime which I am required to account for on IHT400, and seemingly a number of these appear to be to and from his Company Bank Account and Partnership Account.

I have checked and where the company is deemed to be a separate legal entity, any gifts to the company are PETs from the deceased. This seems quite straightforward given the corporate veil. However, if so, are these PETS reduced by the value of his shareholding? Or where the company is deemed to be a legal entity, is this a PET on 100% of its value regardless of the deceased’s shareholding in the companies? Presumably the answer here is yes, unless the “gift” is actually a directors loan.

Also any gifts to the partnership presumably are PETS too. However where there is no corporate veil, would you pro rata each gift by 50% given he was a 50% shareholder? Again, some of these (or all) may be deemed to be a ‘loan’ but I am yet to clarify this with the accountant.

My next question, and the main question then, is in respect of gifts from the company. The deceased used the Partnership account, and one of his companies to pay his son’s divorce solicitor fees and may have made other gifts too such as paying his grandchildren’s’ university fees. I can see transactions from his joint account to his company saying “XXX university Fees” whereby obviously the company account will have then paid the fees. Although the corporate veil applies, surely these are still PETS? In which case, would the PETs be pro rated based on the parties respective shareholdings?

Naturally these gifts never should have been made this way. Do I have any obligation here? I can’t see that I do as there is no money laundering as such, but I thought I would check as clearly the funds have not been managed properly.

Lastly, the accountant has told me that a lot of Directors Loans are owing back to the deceased… in which case presumably I need to run through the “PETs” with the Accountant and work out what are loans and what are PETs to the company…

All bit of a mess really and I just wondered if anyone else had come across something like this and what they did? Any guidance from other practitioners would be very welcome as the deceased has died with an awful lot of transaction that will be caught by the 7 year rule and I am not sure quite how I can account for all this

Hi Christina,

PETs can only made to individuals and not corporations.

Richard C. Bishop

A gift to a company is a chargeable transfer rather than a PET.

Are these gifts to the company or rather are they transactions on the director’s current account? The accountant should be asked for a copy of the director’s current account for each of the companies. I would have thought it much more likely that the payments are reflected in the current accounts (perhaps to reduce or eliminate an overdrawn balance) than a gift to the company.

An English partnership is not a separate legal entity so I can’t see how a partner can make a gift to a partnership. It is likely the payments will have been made to increase the individual’s current account with the partnership (or reduce or eliminate an overdrawn balance).

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Agree with Gerry.

It should be noted the CLT - IHT is charged ‘participator’ i.e split between shareholders, if more than one.

If its a pure gift the amounts would sit in the reserve account. As Gerry suggests its very unlikely they made gifts.

Richard C. Bishop

Would that include Partnerships where you’re also a Partner, or does the same rule note apply?

As you say, a bit (?) of a mess.

On the basis that it seems the company(s) made distributions to the deceased on the pretence they were gifts, I suggest the issues here might best be dealt with by going to counsel knowledgeable in both close company issues and IHT. It may be that these would need to be treated as the repayment of director’s loans. Similarly, with the partnership, the “gifts” may need to be treated as drawings by the deceased. It also doesn’t help that he appears to have been using the company as a conduit for paying university fees (for a child of his?).

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

This makes a lot of sense and is really helpful.

What then is the position regarding transactions made by the company such as paying divorce costs and so on which clearly are not part of the company business?

The partnership and the individual are one for IHT. There is no transfer of value to another entity. Its as if the individual had moved cash from one account to a savings account. Or in his case a partnership account.

Richard C. Bishop

These would be classed as directors drawings and taxed accordingly. Or directors loans if there is not sufficient profits to pay the dividends.

Richard C. Bishop

I’m glad you say that as in all these years I’ve never seen something like this. There’s so many large transactions that I can’t make head or tail of it and what’s what.

In terms of Chargeable Transfers to a Company, am I right in thinking CLT’s, in which case if they’re over the NRB, there’s 20% lifetime IHT? I can feel the headache coming!


Ok thank you.

Gerry very kindly noted that an English partnership is not a separate legal entity “so I can’t see how a partner can make a gift to a partnership. It is likely the payments will have been made to increase the individual’s current account with the partnership (or reduce or eliminate an overdrawn balance).” However, where the partnership dissolves on death and the partnership split 50/50, this means his partner is now receiving 50% of the monies the deceased put on account… would this then not be a PET given the deceased increased the monies standing to the account?


The IHT position will depend if there is a partnership deed (or not).
The 50/50 does not apply since RC v Gray (Executor of Lady Fox deceased (1994) - “Consequently the valuation of an interest in a business carried on as a partnership should be by reference to the appropriate share of each asset and, in arriving at this valuation, regard will need to be had to the terms of the partnership deed or (in the absence of the partnership deed) the relevant provisions of the Partnership Act 1890.”

In real terms the deed should say it’s not 50/50 - for valuation it’s 70/30

NB the Lady Fox principle is complex - advice should be sought.

Richard C. Bishop

At the risk of being contradicted I would suggest that it is most unlikely that these are gifts.

Who makes gifts to a company?

I suggest that these are transactions on the director’s loan account in which case there is no need to consider PETs and CLTs involving the company. The balances are assets of the director (or possibly liabilities) so have an IHT impact.

I suggest the first step is to get the accountant to provide copies of the director’s loan account. This should simplify matters.

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Who makes gifts to a company? - Nobody.

Technically you can’t make a gift to a company in my opinion. I have said this before on this forum and caused myself a lot of heartache with the responses.

It’s simply a transfer of value for IHT from an individual to a company - not a gift. It has a taxable value! For the company it creates an asset in the capital reserve account which is subject to corporation tax.

A better term would be the: Director makes a chargeable transfer - not a gift.

Richard C. Bishop

You will need to determine who receives the balance on the partnership loan account on his death.

You will also need to investigate the availability of business relief.

There was no partnership agreement in this case. And as far as I can tell, the monies were all his, but from the joint account to the partnership

In which case, the account from the partnership should be divided in accordance with who put the money in that account – am I correct in that view?


There is no business relief as the partnership and companies were holding rental properties. The family used to develop but hadn’t done so in a while


For IHT calculation purposes I believe that is the case. “should be by reference to the value of the appropriate share of each asset” - As stated this is a complex area - advice should be sought.

Richard C. Bishop

Hi Richard

Thank you for your response.

In respect of what you said, if the partnership consists of one other partner, and the one who paid monies into the partnership account had died, would this not be a PET for IHT to the other Partner of 50% of the monies standing to the account?

Sorry if I am going around in circles on this. I understand the company will be a CLT / Director’s Loan. But I am not clear on how the partnership differs to (say) how a joint account would be dealt with, held as tenants in common?

Thank you in advance for any comment I receive back.


Sorry I should mention also my example below would be based on a 50/50 split following case law as mentioned by you and Gerry.

Thank you again in advance. I also note BPR, there won’t be any here given the work the partnership and companies undertook.

Many thanks