IHTM30219 - Transfers on death:
unquoted shares - 20% tax test
Unquoted shares or securities that do not represent a control
IHTM30217) of a company qualify for
- the tax attributable to those shares and
- together with the tax on any other
instalment option qualifying property (
- amounts to 20% of the tax on the value
transferred by the chargeable transfer on the death
- for which the person paying the tax is
IHTM30011) in the same capacity.
The 20% test under IHTA84/S228 (1)(b) and (2) is confined to tax
chargeable on the value transferred on the death for which the
person paying the tax on the unquoted shares is liable
in the same capacity. Accordingly, the procedure
to follow is:
the person paying the tax attributable to the
unquoted shares or securities and the capacity (e.g. as executor (
IHTM05012)) in which that person is
paying the tax
- calculate the tax attributable (after any appropriate Business
IHTM25131)) to those shares or
- calculate the tax attributable to any other IHTA84/S227
instalment option property (
IHTM30191) in the death estate for
which the person at i. above is liable in the same capacity
- calculate the total IHT on the death estate for which the
person at i. above is liable in the same capacity
- if the total of tax at 2. and 3. amounts to 20% or more of the
tax at 4., the 20% test is satisfied.
As executor of the deceased, A is liable for and pays the tax
attributable to a holding of unquoted shares which forms part of
the deceased's free estate. In applying the 20% test to the tax
attributable to that holding
- any tax for which A may be liable in a
different capacity, such as a trustee of an lifetime settlement, is
- the fact that B may also be liable as
beneficiary for the tax attributable to the shares (and that if
applied to him the 20% test would not be satisfied) is irrelevant
if the tax is in fact paid by A.
The detailed facts are:
On the death of T in 2001 the death estate, wholly
chargeable, consists of:
|Free estate||Non IOP||£190,000
PET of £242,000 to A becomes chargeable on the death and
uses up the nil rate band.
Under T’s Will the unquoted shares are the only
benefit taken by B.
The tax on the NQ shares is paid by the executor, A. For the
purpose of the 20 % test you have to:
- take into account the tax on all the free
estate as A is liable for it as executor
- but not tax for which A is liable as
- trustee of the settled property (
- beneficiary (and secondarily as executor) of the
IHTM04057), which is not part of the
chargeable transfer on the death.
Applying the procedure given at the beginning of this
- A is paying the tax as executor
- the tax on the shares is £4,000
- A is also liable as executor for the tax on the house,
- the total liability of A as executor for tax on the free estate
- the combined tax at (b) and (c), £44,000, is more than 20
% of the tax at (d).
So A can pay the tax on the shares by instalments.
The fact that B is also liable for the tax on the shares
(and that he would fail the 20% test) is irrelevant.