topic 15 - the main advice areas

Question 1

death of key employee business protection needs

Answer 1

• Term assurance on the life of the employee, for a period during which they are expected to be a key person
• Premiums allowed as business expense and set against corporation tax
• In order to qualify as a business expense for corporation tax purposes, the policy would need to be a term assurance policy with a term of years or less

Question 2

Automatic accrual method

Answer 2

• On death of a partner, their share is divided among the remaining partners in agreed proportions
• Deceased partner’s family is compensated by the proceeds of a life policy written in trust for their benefit
• Normally 100% business relief for IHT on deceased partner’s share

Question 3

Buy-and-sell method

Answer 3

• On death of a partner, the deceased legal representatives are obliged to sell the partner’s share to the other partners, who are obliged to buy it
• Each partner takes out a life policy on their own life in trust for the other partners
• The person who inherits the share is deemed to receive cash, so business relief from IHT is not available

Question 4

Cross-option method

Answer 4

• An agreement for the deceased estate to sell the business share and remaining partners to buy it, but no legal obligation to do so
• Those who inherit, deemed to receive business assets so relief from IHT may be available

Question 5

Real rate of return

Answer 5

approximated by subtracting the rate of inflation from the interest/growth rate obtained on the investment

Question 6

What rule does HMRC apply in relation to gifts with reservation?

Answer 6

If a donor receives any benefit from a gifted asset, the asset is treated for IHT purposes as remaining in the donor’s estate