CASE STUDY 3: Albert

Albert, a widower of 10 years, is 74. He has built up his business as a mechanic over the last 30 years and now employs both of his sons in the business. Although the business is run as a Limited Company, of which Albert as a Director owns 75% of the shares, he owns the garage and yard personally. The value of the two large plots is approximately £250,000. Although this value is not excessive, when added to the value of £350,000 for his modest house in the New Forest, and his savings of £100,000 the garage and yard are likely to be chargeable to IHT at 40%.  Albert wants to keep the business running for his boys, and also wants to retire in the near future.

Advice:-

As the garage and yard are assets used in a personal business only 50% of their value would be included in Albert’s estate. The IHT due on the yard is £50,000.

To avoid this charge Albert could consider gifting the garage and yard to his sons as soon as possible. Whilst he is still a Director and controlling shareholder he will not have to pay any Capital Gains tax on the gift, instead any future sale of the yard for the sons will take into account Albert’s original purchase price of the yard.

For inheritance tax purposes, as long as Albert survives 7 years and the business continues for at least 2 years, the gift would be fully outside his estate. It would therefore be worth considering because by doing nothing he risks reducing his gift to his sons considerably.

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