Out of the frying pan

01 October 2013

Issue: 4422 / Categories: Forum & Feedback , Inheritance Tax

The beneficiary of a trust has a 50% life interest in business premises from which a company – of which she is a director and 25% shareholder – trades. There is concern regarding the potential inheritance tax liability

Our client is the life tenant of a trust created before 22 March 2006. The life interest is in 50% of business premises from which the trading company of which she is a director and 25% shareholder trades. The premises comprise a shop plus flats above that are let.

Our client is concerned that a substantial amount of inheritance tax will be payable by the trustees on her death because business property relief will not be available on the half share of the premises.

She is therefore considering terminating her life interest. This would be a potentially exempt transfer but the potential capital gain is substantial. We do not believe entrepreneurs’ relief would be available to the trustees. Our queries are as follows.

If our client terminates her life interest can the gain be held over under TCGA 1992 s 165?
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