CheckLists.Tax (beta)
C4. Gift by a company
INCOME TAX
Transfer of assets abroad
- Gift of asset to non-resident person by closely held company as a relevant transfer
- The TOAA rules apply to a relevant transfer by a closely-held company in which an individual has a qualifying interest (ITA s.720A).
- Only applies to income arising on or after 6 April 2024 (FA 2024, s.22(10)).
- See further i1. Creation and addition to trust.
Legislation:
Cases:
HMRC manuals:
Commentary:
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CAPITAL GAINS TAX
Attribution of gains of non-resident company to shareholders
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Legislation: TCGA s.3
Cases:
HMRC manuals:
Commentary:
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CORPORATION TAX
INHERITANCE TAX
Closely held companies
- Attribution of transfer of value by company to participators
General
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Transfer of value
- Ordinary rules apply.
- A close company can only make actual transfers of value, not notional transfers.
- Surrendering group relief not a transfer of value (s.94(3)).
Apportionment
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Excluded property: no apportionment to non-long term UK residents
- To the extent that the transfer of value is attributable to non-UK property, that transfer of value is not apportioned to an individual who is a non-long-term UK resident (s.94(2)(b)).
- Query the position if the property transferred is UK residential property. See Sch A1.
Close company
- Corporation tax definition (s.102).
- A loan creditor is taken into account when determining whether a company is a close company, but is not treated as a participator for the purpose of deeming a transfer of value (see below).
- Includes a non-resident company that would be a close company if UK resident (s.102).
Participator
- Corporation tax definition (s.102).
- But excluding a mere loan creditor (s.102).
- Rights and interests in a company include rights and interests in the assets of the company available for distribution among the participators in the event of a winding up or in any other circumstances (s.102).
Legislation: IHTA 1984, s.102;
Cases:
HMRC manuals:
Commentary:
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- Indirect participator in close company that makes a transfer of value
- If Close Company 1 is a participator in Close Company 2 and the 2nd company makes a transfer of value, that transfer of value is first apportioned to Close Company 1 and then apportioned to its participators (s.94(2) - "any amount so apportioned to a close company shall be further apportioned among its participators, and so on").
Legislation:
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- Reliefs and exemptions
Reliefs available for company transfer of value
- Commercial transaction - s.10
- Dispositions allowable for income or corporation tax purposes.
- Retirement benefit schemes
- Employee benefit trust
Exemptions available for participator
- Annual exemption is available by virtue of s.94(5).
- Spousal exemption (IHTM14853).
Exemptions not available
- Not a potentially exempt transfer
- Small gifts - does not apply to deemed transfers (IHTM14853).
- Normal expenditure out of income - does not apply to deemed transfers.
- Gifts in consideration or marriage - does not apply to deemed transfers.
Legislation:
Cases:
HMRC manuals:
IHTM14853 - Lifetime transfers: transfers by close companies: exemptions;
Commentary:
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- Business and agricultural property relief in relation to attributed transfers of value
Reducing the value of the company's transfer of value
- Business and agricultural property relief can apply to reduce the value of the transfer of value made by the company where the conditions are satisfied in relation to that transfer (i.e. attributable to the value of relevant business property owned by the company for 2 years etc.).
- Depending on the facts, this may not cover all the value transferred (e.g. if the company owns property that is not relevant business property).
Reducing the value of the participator's transfer: may still be attributable to T's shares
- Transfer of value may be attributable to relevant business property even if T does not dispose of that property
- E.g. T, owning 100% of a company, causes the company to issue new shares to T's child, thereby reducing the value of T's existing shares.
- The transfer of value is attributable to T's shares, those being the only property in T's estate that diminish in value by virtue of the transfer of value - see Nelson Dance §28(iv).
- Another example is where a company makes a transfer of value which is attributed to the shareholders (s.94) - Nelson Dance §28(v) suggests that the value is also attributable to the shares in T's estate.
Clawback on transferor death within 7 years
- See V1. Death.
Legislation: IHTA s.94, s.98, s.104;
Cases:
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
Commentary: McCutcheon §2-80;
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Gift with reservation of benefit
- Gifts made by companies
- HMRC say that gifts made by persons who are not individuals, such as companies, are not within the scope of GWR (IHTM14312).
- Query the position where transfer of value is attributed to shareholders.
- Gift does not need to be made to an individual to be a GWR.
Legislation:
Cases:
HMRC manuals: IHTM14312;
Commentary: McCutcheon 7-47;
See also: