IHTM16248 - Close companies and settled property; example of altering rights

The X Investment Company Ltd has assets of £5million and issued share capital of 1,000 ‘A’ ordinary shares and 1,000 ‘B’ ordinary shares. All shares have one vote each.

On 24 October 2003 the directors resolved to increase the A share votes to two votes each.

The participators at 24 October 2003 are

Mr X = 400 A shares

Mr X junior = 400 A shares

The X Family Settlement = 200 A shares & 1,000 B shares

Mr X - no tax payable - the value going into his estate is higher than the value of the disposition - IHTA84/S94 (1).

Ditto Mr X junior.

Miss X has an interest in possession in the whole funds of the X Family Settlement: IHTA84/S100 looks through the trustee to take her as deemed transferor at the time of the alteration.

The Family Settlement had operating control of the company with 1,200 votes. After the re- arrangement it had 1,400 votes out of 3,000 and had lost control.

If the value of the shares with day to day control is taken as £y, then the value after the change of rights might be £z. The difference between the two figures is the chargeable ‘relevant decrease of the value of the property in which the interest subsists’ under IHTA84/S100 (2) and that is the amount chargeable under IHTA84/S52(1).

As with other claims on an interest in possession coming to an end, this will be a potentially exempt transfer (PET) (IHTM04057) if it qualifies in the ordinary way.

However, there is the prospect that the value underlying a claim like this could fall into a non-interest in possession settlement (or a non-interest in possession fund of the same settlement) and that would make it immediately chargeable.