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Valuing shares to calculate discount for IHT purposes.
My client died in May and owned 20% of a family property company – investment mainly.
The company does not pay dividends. She was an employed and paid secretary.
- she was not a quasi partner;
- she did not have any specific rights built into her shareholding;
- she had no special agreement with other directors or shareholders in regard to decision making;
- she had no rights to influence dividend policy;
- she did not have a strategic holding which retained the balance of power, between other shareholders; and
- the company’s constitution does not provide for a valuation based pro rata on the value of the company.
If she wished to sell her shares, she had to offer them first to one of the other family shareholders.
What, in readers’ opinion, would be a fair discount on the share value in respect to her 20%. This would help in calculating her inheritance tax liability.
Query 20,043 – Gamekeepers.
UK tax payable on Australian pension income.
One of my clients was born in the UK but lived in Australia for 50 years. In 2020, she returned to the UK to live permanently.
She had an Australian superannuation fund which was sold and transferred across to the UK.
In addition, she receives an Australian civil service pension. We originally thought this would be subject to 32.5% tax in Australia as she is no longer resident, however, we now understand that she can elect to have the pension paid to her UK bank account without paying any Australian tax.
I have two questions for Taxation readers:
1) Is our understanding correct?
2) Would that mean the client just pays tax at the normal UK income tax rates, with the normal personal income tax allowance?
Any assistance readers can provide will be hugely appreciated.
Query 20,044 – Sunset.
Can shareholder’s wife be assigned dividend-only shares?
I act for a successful partnership of two brothers. They are now looking to incorporate the business. One of the partners is married and the other is single.
The married partner wants to bring in his wife as a shareholder. She would get 20% of the shares with her spouse holding 30%. Thus the current 50-50 split between the two sides of the family would be maintained.
The single brother has approached me saying that he is unhappy with this. He has no objection to dividends being paid to his sister-in-law, but he thinks that his brother’s marriage is not strong and fears that there might be a divorce and doesn’t want to risk the company’s shares being mixed up in divorce proceedings. He has asked whether his sister-in-law’s shares could be dividend-only shares with no other rights.
The problem with this would be that there is then a risk that the dividends could be taxed on the husband and not the wife – so negating the reason for the planning.
I am uncomfortable for two reasons. The first is that I cannot see how I can continue to act for all involved given what I have been told. The second is – assuming that I get over the first hurdle – coming up with a structure which gives both parties what they want which is dividend income taxable on the spouse but with no capital value.
What advice would Taxation readers give?
Query 20,045 – Piggy in the Middle.
Is VAT due on contra charge from customer?
One of my big clients provides marketing services to a major insurance company for a fixed fee of £100,000 plus VAT per month.
I noticed that the fee has reduced to £80,000 plus VAT for the last six months when I was preparing the year-end accounts.
My client says that the 20% discount is because the insurance company is providing software support services to my client because it has an in-house IT team that has spare expertise.
This seems a mutually beneficial deal but I wonder if there is a VAT error here, ie the insurance company should issue a monthly sales invoice for £20,000 plus VAT to my client, with my client’s own invoice continuing to be for £100,000 plus VAT.
The issue is important because insurance companies cannot fully claim input tax due to the rules of partial exemption. HMRC might therefore be concerned about a tax loss if it reviews my client’s records.
Readers’ thoughts would be greatly appreciated.
Query 20,046 – Barter Bob.
Queries and replies
