Tax Mitigation Case Study – Solve Inheritance Tax Liability of 830K Pounds

Aims and Objectives

1. He was going to emigrate to the US and wanted to give shares to 3 key employees and allow them to manage/run the company.

2. To mitigate tax as far as legally possible, particularly if he became a U.S resident.

3. Be financially secure.

4. Solve an Inheritance Tax liability of 830K pounds.

Problems

1. He would have to pay c 330K pounds in tax for employees if the shares were gifted and the CGT for him on disposal would be 80K pounds

2. IRS rules HMRC requirements for successful tax emigration. CGT and Corporation Tax on land if planning granted would levy tax on gain at an effective rate of 58%. Ownership of company if he wanted to attain ‘non domiciled status

3. Very difficult to lose non domiciled status immediately but possible. One grandchild with special needs (mild but irresponsible)

4. Wills deficient, not possible to utilize Nil Rate Band on first death, very inflexible.

5. If he died, who would buy shares and how much could they pay?

A structure was set up to tax efficiently provide future share ownership by the current managers as well as a saving of 90% of the tax payable on dividends.

Outcome

If he died, then the widow would obtain use of the full value of the shares within days. If as more likely he didn’t die and the land was sold for development (estimated 4.1m pounds), then the gain above 1.2M pounds would be CGT free. 1.25M pounds tax free cash would be available for MDO. Joint pension of 180,000 pounds between MDO and wife resulted.

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