Taxation
Are there any inheritance tax issues?
Cash paid to a company from a policy will boost the value of the shares in that company, so if the key person who dies is also a shareholder, the value of his or her estate would be increased. If the shares pass to someone other than the wife, husband or registered civil partner of the person who dies, and business property relief is not fully available, any inheritance tax liability may increase.
Taxation for Partner/Director Share Protection
Inheritance Tax
Each protection policy used to support a cross option agreement is usually written in trust for the benefit of the fellow partner(s)/shareholding director(s). As such, any benefits from the policy will be payable to the trustees and not to the partner/shareholding director or his estate. In addition, the policy premiums may fall within one or more of the inheritance tax exemptions.
If a partner/shareholding director dies and the cross option method has been used then any business property relief on their share of the business would be preserved.
Capital Gains Tax
There is no capital gains tax on death but the beneficiaries of the estate may be liable for the increase in value of the share of the business between death and sale, although in practice this would be rare.
A capital gains tax liability may arise. However, in the event of the sale of a partner’s or shareholding director’s share due to critical illness, a capital gains tax liability may arise.
