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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

Mr Hale owns 40% and his wife owns 20% of the shares in an unquoted company. Values per share are: 40% holding £500,000; 60% holding £900,000; 20% holding £150,000. Mr Hale gives his 40% holding to his son. His wife retains her 20%. What is the transfer of value before any exemptions or reliefs?

The transfer is £750,000. The loss to the donor is the value of the combined 60% holding before the gift (£900,000) less the value of the wife's retained 20% holding afterwards (£150,000).

  1. A£500,000
  2. B£600,000Correct
  3. C£750,000
  4. D£650,000

Explanation

Related property: value of the 40% as 40/60 of the 60% holding value = £900,000 x 40/60 = £600,000. Loss to donor = value before (£600,000) plus the wife's 20% relating, so compute: before = 60% holding £900,000; after = wife's 20% alone £150,000; loss = £750,000. The loss to donor principle gives £750,000, and this exceeds the related property apportionment of £600,000.

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