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Transfer of Assets to a Company

24.A70. One of the methods of minimising estate duty without incurring gift duty is for the taxpayer to transfer part of his property to a company for full consideration. The purchase price often remains outstanding as a debt due from the company and the amount of the debt is not varied as a consequence of fluctuations in the value of the property transferred. The benefit of an increase in value accrues to the company and thus to the equity shareholders, who commonly are the relatives or dependants of the taxpayer. (Of course this method of minimising duty carries the risk of defeat if the property transferred falls in value.) The taxpayer may effectively control the company, in which event he will continue to control the transferred assets. The taxpayer may procure for himself benefits from the assets during the remainder of his life.

24.A71. If the retention of control of the assets after the transfer and the receipt of benefits from the assets after the transfer are disregarded, there remains a sale of the taxpayer's assets for full consideration. If the purchase moneys are outstanding as a loan, the provisions proposed in paragraphs 24.A62–24.A64 will bring to tax any gift involved in the terms of the loan. There is, in the Committee's view no justification under an integrated estate and gift duty for seeking to trace the assets transferred and to tax at some later time any increase in their value. Tracing is, in any event, a near impossible exercise if it is to be done fairly. The company may not own the assets on the taxpayer's death: they may have been sold and the sale price merged with other moneys of the company, or they may have been given away. And even should the assets be owned by the company at the time of the taxpayer's death, the increase in their value may at least in part be due to improvements made by the company.

24.A72. The question remains whether there is need for special provisions in relation to the retention of control after transfer of assets to a company or the receipt of benefits after such transfers.

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