IHTM25122 - Valuing Businesses and Partnerships: Instalments
IHT on a partnership interest may be paid by instalments,
IHTA84/S227. The instalments will be interest-free, IHTA84/S234.
However, Articles of Partnership often contain a provision by
which the surviving partners will purchase or will have the option
to purchase the interest of a deceased partner. The instalment
option ceases on sale, and the balance of tax falls due at once. If
the surviving partners pay the purchase price in stages, each
part-payment is treated as a part sale of the business, IHTA84/S227
(6).
| Example
The Partnership Articles provide that the surviving partners are to purchase the deceased's share in the partnership at its market value. The purchase price is to be paid in 4 annual instalments, the first to be paid 12 months after the death. The deceased dies on 6 April 2002 and the open market value of the partnership interest is agreed at £40,000. Instalment assessments will be as follows:- |
| 31 October 2002 | 1st instalment due on £40,000 |
| 6 April 2003 | Tax due on
£10,000;
instalments continue on £30,000 |
| 31 October 2003 | 2nd instalment due on £30,000 |
| 6 April 2004 | Tax due on next £10,000; instalments continue on £20,000 |
| 31 October 2004 | 3rd instalment due on £20,000 |
| 6 April 2005 | Tax due on next £10,000; instalments continue on £10,000 |
| 31 October 2005 | 4th instalment due on £10,000 |
| 6 April 2006 | Tax falls due on balance on £10,000 |
| (If the
Articles provide for, say, 12 annual payments to the deceased's
executors, we do not extend the 10 year period for instalments.)
If the purchase price is less than the taxable value then the instalment option will remain for the excess over the purchase price paid. |
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