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Shareholders’ Agreements and Inheritance Tax

Most shareholders in private trading companies know that these shares will be exempt from inheritance tax (“IHT”) when they die.

Many of them are also parties to what are known as shareholders’ agreements – in simple terms, private but legally enforceable agreements between shareholders on such matters as dividends policy, share transfers and what happens when an employee shareholder leaves the company.

In our experience, many shareholders’ agreements include a provision that, if a shareholder dies, his (or her) personal representatives must sell the shares – and the other shareholders must buy them.

The Revenue’s view (which they hold very strongly and will take as far as they need to) is that this provision represents a legally binding contract at the point of death – so the exemption is not available and, as a result, IHT is due.

We have been told of a number of cases where the Revenue have enquired whether shareholders’ agreements existed – and then tried to charge 40% IHT when they reviewed the agreement.

This is a problem which is straightforward to put right, but costly to ignore. If you would like to discuss this in more detail, please contact Cathy Corns or me.



Date: 28th August, 2008
Author: David Mansell


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