- will the right amount of cash be available at the right point in time?
- will the shares be sold at a fair price and to the correct parties?
- will the funds paid for the shares be held/available to the spouse/beneficiary in an appropriate tax-efficient structure?
A properly structured share purchase arrangement caters for all of these issues.
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Using this flowchart to establish your needs:
Step 1 - enter the value and percentage of the individual’s shareholding 1a followed by the other shareholders’ percentages 1b. Total shareholdings must not exceed 100%, but may be less if not all shareholders participate.
Step 2 - the sum assured should equal the value placed in Step 1a. The policy should be placed in a business trust, with the individual’s fellow shareholders as beneficiaries; their individual entitlement is calculated as follows:
Beneficiary’s current shareholder percentage |
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100 - Percentage in Step 1 a) |
The double option agreement* ensures that the sale and purchase will proceed at the agreed price between the right parties.
Step 3 - List fellow shareholders and the percentage they will receive of the Sum Assured in Step 2, using the formula above. The total shareholdings must equal 100%.
Step 4 - The shareholder establishes a discretionary trust in their Will* which, upon death, will receive the shares. Assuming Business Property Relief applies this should be an exempt transfer for Inheritance Tax purposes. At the point the life policy is established under the business trust a double option agreement will be put in place to ensure that the deceased’s trustees will sell the shares to the surviving shareholders and receive the funds provided by the life policy. These funds will be held by the trustees of the discretionary trust.
Step 5 - The beneficiaries of the deceased shareholder will have access to the funds in the discretionary trust without the funds being within their estate. This provides protection against future Inheritance Tax liabilities, together with general asset protection. Further Inheritance Tax benefits can accrue by the beneficiaries being provided with access to funds via loans, which will be further debts on their estates for Inheritance Tax purposes.
The end result of this will be that the remaining shareholders and family of the deceased shareholder each end up with what they want, namely the shares and cash respectively, all in a highly tax-efficient manner.
*Please note that the references asterisked and this area of financial planning generally will involve other professionals such as Solicitors, whose services are separate and distinct to those offered by St. James's Place.
Wills and trusts are not regulated by the Financial Conduct Authority.
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