IHT, AIM shares, and Gifts

[DrFfybes]

I have a fried who wishes to reduce his IHT exposure. He might live 7 years, but isn't sure, and is concocting what seems a complex arrangment with his grandchildren to set up small businesses with them (as a sideline to their main jobs, current thought is buying derelict properties to do up) to get business relief.

This seems plausible, but AIUI the beneficiaries must continue to operate the business until he dies, which could be 15 years!

My idea was to gift money to take him to his IHT limit (say he gets the full £1m allowance but has £1.4M, then to gift £400k) and then to move an equivalent amount in IHT exempt investments, eg. the Octopus funds.

Is my initial assumption correct, and am I correct in thinking that if he died in 5 years, then the £400k gifts would come back into the Estate, however the Octopus fund would reduce his taxable estate back to his NRB?

Paul

[GrahamPlatt]

I think there’s a sliding scale - not quite sure how it operates, but if say he gifts now & dies in 5 years, then ~2/7 of the £400k comes back into the estate.

[Lootman]

I have a fried who wishes to reduce his IHT exposure. He might live 7 years, but isn't sure, and is concocting what seems a complex arrangement with his grandchildren to set up small businesses with them (as a sideline to their main jobs, current thought is buying derelict properties to do up) to get business relief.

This seems plausible, but AIUI the beneficiaries must continue to operate the business until he dies, which could be 15 years!

As I understand it the deal with BPR-eligible entities, most easily achieved via qualifying AIM shares, is that you can gift them after the qualifying 2-year period, rather than feeling that you have to wait (or live) for 7 years.

And then as long as the donee retains them until your demise, then IHT relief applies even if you die after 2 years and 1 day, well short of the 7 years you would otherwise have to endure for

The downside as you note is that if you live for decades more, then the donees are stuck with this possible dud of a business. Although one could construct an argument that the donee could offload them after 7 years of life and claim the normal exemption as well.

Of course, whether HMRC has the ability to look through such transactions, particularly if the executor knows nothing about them, is another matter. But no doubt Eboli will be along in a bit to tell us that HMRC never misses a trick . .

[mutantpoodle]

I think you will find that owning AIM shares (NOT ALL qualify) for 2 years means they are exempt from IHT
there is no need to give them away

[Lootman]

I think you will find that owning AIM shares (NOT ALL qualify) for 2 years means they are exempt from IHT
there is no need to give them away

Yes but by giving them away those assets will no longer be a part of your estate. If at some future point that AIM share ceases to qualify for the exemption, then it won't matter as long as it was eligible and exempt at the time of the gift. Whereas if you had kept it in the estate, then it would matter.

Also, if you give it away, after another 7 years it becomes exempt anyway and in my opinion, can be forgotten about. At that point the donee is free to sell it. I believe that the alleged requirement to own it until the death of the donor is exaggerated. It is between 2 and 9 years that there is benefit.

I have twice owned an AIM share that lost its eligibility for IHT exemption. One because it went private and one because it listed on a second exchange.

[DrFfybes]

I think you will find that owning AIM shares (NOT ALL qualify) for 2 years means they are exempt from IHT
there is no need to give them away

The point is (and reading my OP I didn't make this clear) the donee also wants to help his Grandchildren now.

Hence trying to set up sidelines for them to make money on short term (like hopefully property renovation/flipping within a 12 month period with him providing the capital).

He has anough to gift (say) £300k in cash, AND move £300k to IHT exempt funds, which AIUI would mean the inheritors coud do what they want with the gifts now (like pay off a mortgage), and if he died in 3 years the gifts would fall back into the estate for IHT purposes. However the IHT exempt holdings would by then be discounted, which would reduce his estate back below the threshold.

Paul

[Kantwebefriends]

If he finds AIM shares too boringly predictable he could consider EIS investments.