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Samsung – An ‘astronomical’ tax liability?
Samsung, the South Korean electronics giant hit, the headlines at the end of last month.
However, this was not PR around its latest Galaxy handset. No, it was something of a different astronomical nature.
Usually the world’s technological titans are in the press for ‘not paying their fair share’ or other similar soundbites. The beneficiaries of South Korea’s richest man, Lee Kun-Hee, have been left with a reported tax liability of $10bn. Most of this estate was made up of his shareholdings in Samsung.
He was South Korea’s richest man with an estimated fortune of $20.7bn. Most of this estate was made up of his shareholdings in Samsung’s various entities.
The country’s death tax can be as high as 60% for those inheriting shares meaning that Lee’s beneficiaries could owe as much as $10bn in tax.
Yes, that’s almost as much as the GDP of Chad, since you’re asking!
However, we are told that the beneficiaries of Mr Kun-Hee’s estate will not have to sell any of the shares (and potentially giving up control) to pay the tax man.
It is anticipated that the Samsung Group of Companies will increase the payment of dividends to help fund the liability over a 5 year period. It seems to be that this assumption caused the share price of the Company to rise!
UK Inheritance Tax (“IHT”) on shares
What is the position in the UK?
Where one has shares in an unquoted trading company then they should qualify for 100% Business Property Relief (“BPR”) after 2 years. This is regardless of the size of the shareholding.
As such, the shares should not be liable to IHT on death or on a lifetime transfer subject to other conditions.
This should mean that the beneficiaries of shares in a family business should not have to sell any of them to fund a tax bill.
Quoted shares and BPR
But what about quoted shares like Samsung?
The position here is less generous. Broadly, if the shares are listed on a recognised exchange then one needs to have control of the Company to obtain BPR (and this is at a reduced rate of 50%).
There is an important wrinkle here.
Shares which are listed on AIM are considered to be ‘unquoted’ for the purposes of BPR. This means that Great Aunt Hortence could invest the £2m she has in her post office account in a basket of AIM shares (assuming they meet the other conditions) and, after 2 years, it would fall outside her estate*.
I have spoken in the past about how the qualification of shares listed on AIM seems to be contrary to the policy behind BPR previously.
Could this be tweaked in a future Budget, or would this have a deleterious effect on the value of the AIM market?
*Note, AIM is a volatile market – I’m not saying this is a good idea!
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