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  • Overview

    We acted for Executors in an estate where the deceased held shares in a private company involved in manufacturing and distribution.

    Although HMRC had accepted in principle that the company shares were relevant business property, they sought to limit the claim to BPR on the basis that the company held large cash reserves not needed for trading purposes.

    Of the £3,000,000 held in cash by the company, only around £1,000,000 was required to ensure normal trading liquidity, meet outstanding costs and fund replacement machinery in the near future.

    On that basis, HMRC argued that around £2,000,000 of cash in the business was not required for normal trading purposes and therefore constituted an excepted asset which would not qualify for BPR.

    In order to address this point with HMRC it was worth reminding ourselves that the reason the shares in the company attracted relief in principle was because the business activity of the company was one which did not consist “wholly or mainly of making or holding investments”. In this context “mainly” means over 50% and so, it is the case that a company may engage in limited investment activities without the loss of relief.

    From the company accounts it was clear that the firm was not wholly or mainly an investment company and that its profits, turnover, employees time and main activities were trading activities.

    Further, it was possible to argue that the cash surplus to immediate trading requirements was not an excepted asset for the purposes of BPR if it was producing a return. Most of the £2,000,000 “surplus” had been placed on deposit accounts by the company and was indeed producing an income. It was therefore possible to argue that the company was engaging in investment as a business activity in its own right.

    The argument was put to HMRC that the business was multi-faceted and that BPR should be given to the entire share value held by the deceased.

    HMRC accepted the argument and 100% relief was obtained on the value of the company shares. Had the arguments of HMRC held, a tax bill in excess of £100,000 would have been payable.

    If you would like to discuss any of the details within this case please contact Richard Hearne on 01892 701153 or richard.hearne@ts-p.co.uk.

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