When a close company makes a transfer of value tax is charged as if each individual participator had made a transfer of the amount apportioned to them by reference to their rights and interests in the company immediately before the transfer. A main requirement is, of course, that as a result of the disposition made by the company the company's estate after the disposition is less then it was before:-
A company transfers a house to a director for no consideration or a consideration less than the market value
A company has an issued share capital of 100 £1 Ordinary
Shares, 50 of them owned by X and 50 by Y. The company makes a gift
of £500,000 to trustees for the benefit of X's and Y's
children. Each of the two participators, X and Y is treated as
having made a transfer of value of £250,000
If its conditions are met, s.10 IHTA 1984 affords relief to
company dispositions as it does to those by an individual.
Companies sometimes make bad bargains and with hindsight a company
can often be seen not to have received a benefit commensurate with
its outlay. In view of s.10, a bad bargain would not be treated as
a transfer of value provided it was a normal commercial transaction
not intended to confer a gratuitous benefit. Care needs to be taken
not to give any impression that SAV are, by technicalities, seeking
to impugn ordinary business transactions. If a transaction is
brought to notice as being in the usual course of business but this
cannot be accepted, advice should be sought before any further
approach is made to the agents.
In the majority of cases involving close companies payment
or the assettransferred is liable to Income Tax or Corporation Tax in
the hands of therecipient. Where this is the case, there is no claim in to
IHT under s.94(s94(2)(a)).
Transfers treated as made by s.94 are not PETS [s.3A(6)
IHTA 1984]. The annual exemption is available as is spouse
exemption to the extent that the estate of the spouse of a
participator is increased. The "small gifts", "normal out of
income" and "in consideration of marriage" exemptions are not
available since they do not apply to deemed transfers.
| Additional Guidance: SVM150000 |
