I am instructed to settle company shares owned by my client, valued at £116k by his accountant. The client wishes to top up the rest of the trust with cash given we’re not close to reaching the £325k limit.
The accountant asked me if I was going to ask for permission from the HMRC about the value of the shares for tax purposes and this threw me somewhat. Is there a system whereby you can cross-check with the HMRC that they accept a valuation of an asset so that when you settle the remaining (say) £209k into trust, they can’t later come back and say you’ve settled too much monies into the trust?
Would it be suggested to settle just up to £300k for example to make sure we’re not close enough to the limit? I’d really welcome your opinions
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There are two ways in which you can get HMRC to approve the valuation of the shares.
Firstly, the gift into the trust will be lifetime transfer chargeable to IHT and you should submit form IHT100 which will include the value of the shares.
Secondly, the gift to the trust will be a CGT event for the settlor, with the option to holdover the gain. If the CGT charge route is taken you can use the post-transaction valuation check using form CG34 and if the holdover route is taken then that will need to be claimed in the individual’s self-assessment return.
Either way it would make sense to have the value of the shares agreed before further cash is added to the settlement.
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Jeremy, thank you for your helpful response. Could you kindly sign post me as to the process to have the value of the shares agreed? I’d like to look into this and advise my client on this process. Thank you again.
Christina, to clarify, it is not possible to get the value agreed until after the transaction has been carried out. Form IHT100 will need to be prepared and submitted to report the transfer into trust. Form CG34 can be submitted once the transfer has takjen place to agree a value for CGT before the next tax return for the client is due.
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I think that HMRC won’t open an enquiry into the IHT100 as the value is miles below the NRB and the taxpayer’s valuation would need to be in very serious error before tax could be due. And that assumes that BPR isn’t due. Also £116K seems to be below the reporting threshold. You’d need to take a punt and settle some cash at the outset to give HMRC a sporting chance of upping the valuation up to the threshold.
As regards CGT I think HMRC would ask if was intended that a holdover election is to be made and, if so, would you agree to defer the valuation. But I suppose you could say ‘no’ to the second question. See CG66981.
Then this will happen: HMRC will be very slow in replying to the CG34 and to any subsequent correspondence so that the matter will be unresolved on 31/1/25 which is the last date for your client to file his/her tax return that includes the capital gain. HMRC will stop work on the valuation at that time (one of the rules of the CG34 process). They will only recommence if an enquiry is opened into the return. If holdover relief is claimed on the return there would be little point to an enquiry. If no holdover election then your client will have to pay the CGT with no guarantee that HMRC will open an enquiry.
The point is HMRC will be unwilling helpers in your tax planning and you shouldn’t expect their cooperation.
Wouldn’t it be easier to keep the shares and settle £325K in cash?
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Hi Duncan
Thank you for your really helpful response.
I agree, I would have settled just cash but the shares are likely to increase a lot in value and the cash can be used for developments which is what the shares are in (a business containing commercial property).
I wonder whether to just settle cash up to the 80% and do away with any reporting but that feels a bit sly for some reason. The clients accountant has valued the shares and they’re low due to a large directors loan outstanding to the client.