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Readers' Forum - A reclassification plan

04 August 2005
Issue: 4019 / Categories:

Mr G died in December 2003, owning 45% of the £1 ordinary shares in a trading company, G Ltd. Another 45% of the shares are owned by his widow, with the remaining 10% owned by two of his three (adult) children. Under Mr G's will, his shares were left to Mrs G although they are still in the names of the executors. Mrs G is neither an executor, nor a director of G Ltd. In February 2005, G Ltd ceased trading and is now a property investment company. The following action has been suggested.

Mr G died in December 2003, owning 45% of the £1 ordinary shares in a trading company, G Ltd. Another 45% of the shares are owned by his widow, with the remaining 10% owned by two of his three (adult) children. Under Mr G's will, his shares were left to Mrs G although they are still in the names of the executors. Mrs G is neither an executor, nor a director of G Ltd. In February 2005, G Ltd ceased trading and is now a property investment company. The following action has been suggested.

(A) A company resolution be passed to reclassify the 45% shares owned for many years by Mrs G as £1 'A' ordinary shares so that dividends could be voted on those shares to the exclusion of the £1 ordinary shares. All the shares would rank equally for all other purposes.
(B) A deed of variation will be entered into before December 2005 under which Mr G's shares will pass to a discretionary trust for the benefit of all three of Mr and Mrs G's children (and remoter issue) instead of passing to Mrs G who will not be a beneficiary under the discretionary trust.
(C) Future dividends from G Ltd (if any) will be voted to the holders of the £1 'A' ordinary and/or £1 ordinary shares as decided from time to time. Dividends have not been paid for many years, but will possibly be paid from 2006 onwards.
(D) Elections under IHTA 1984, s 142(1) and TCGA 1992, s 62(b) would be made.

It is not appropriate to vary Mr G's shares directly to the three children.
The following questions arise.

1. Is the order of events in (A) the share reclassification, and (B) the deed of variation, important?
2. Will the variation be effective to exclude Mr G's shares from Mrs G's estate on her death?
3. Are there pre-owned assets tax or income tax implications?
4. Are there anti-avoidance provisions that could have an impact on the suggested course of action?

Finally, are there any other issues to be borne in mind?
Query T16,652  

Issue: 4019 / Categories:
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