Ask PLC Home

Practical Law may have moderated questions and answers before publication. No answer to a question is legal advice and no lawyer-client relationship is created between the person asking the question and the person answering it. Where appropriate, you should consult your own lawyer for legal advice. Practical Law's employees are not practising solicitors or barristers. The Ask scope and rules apply.

What are the tax issues with a non-reciprocal share option and life assurance arrangement on a sole shareholder's death?

I'm considering the following situation:

One person (A) is sole owner and director of a limited company. They are considering succession planning in which two senior employees (B & C) would purchase A's shareholding from A's estate on A's death. This is similar to more standard director share protection arrangements, but without the usual reciprocity (as B & C do not have a shareholding to offer). The proposal would be for A to take out a life policy, written in trust for the benefit of B & C. The company would then pay the premiums. There would also be an option agreement (not fixed to retain BPR) entitling either the estate of A, or B & C to force a purchase of A's shares by B & C.

My key concern with this arrangement is that there is no reciprocity, so HMRC could argue that this is not a wholly commercial arrangement, and that the gift with reservation rules (s102 FA) could therefore apply (with IHT then due on the estate).

Are you able to give a view on whether these concerns appear valid, and if you know of any other potential way of achieveing a similar outcome more simply?

Anonymous (Private practice)

Request a free trial

To access this resource and thousands more, register for a free, no-obligation trial of Practical Law. Register using the button below, telephone +44 (0)20 7202 1220 or e-mail

A free trial will give you:

Unlimited access to Practical Law online know-how
Thousands of market standard documents and clauses
Daily alerts and weekly update e-mails on key legal developments in your practice area


Log in

To access this resource, log in below or register for free access.

Contact us

Our customer services team are available every working day 8.30am to 7pm (GMT).

{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247935928141", "objName" : "a-006-5095", "userID" : "2", "objUrl" : "", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "false", "analyticsPermCookie" : "2-3b01f5d1:15b0b2dd987:92b", "analyticsSessionCookie" : "2-3b01f5d1:15b0b2dd987:92c", "statisticSensorPath" : "" }