UK Law and Practice Contributed by: Roger Gherson, Alfred Gherson, Lisa Uttley and David Tipping, Gherson Solicitors
trust. However, family investment companies, pre - nuptial agreements and limited liability structures also play supporting roles. With discretionary trusts, trust assets are held sepa - rately from any individual’s personal estate and no beneficiary has an automatic right to them. However, the UK’s legal framework imposes signifi - cant limitations on the effectiveness of any asset pro - tection strategy, particularly through the insolvency clawback provisions, the transactions defrauding creditors regime and the divorce court’s broad pow - ers over financial remedies. The key principle underlying all UK asset protection planning is that structures must be established early, in good faith and when no creditor claims or matrimo - nial disputes are foreseeable. Planning undertaken in the shadow of a known threat is highly vulnerable to challenge. Family investment companies and prenuptial agree - ments provide complementary protection for succes - sion and divorce risk respectively. However, significant statutory limitations constrain asset protection planning. Legislation allows any cred - itor to challenge transactions at undervalue made to put assets beyond creditors’ reach, with no time limit and no insolvency requirement. The statute provides a bankruptcy-specific clawback for transactions at undervalue (within two to five years) and for preferences (within six months to two years). On divorce, the court is empowered to set aside trans - actions intended to defeat claims for financial relief. The overriding practical principle is timing: structures must be established early, in good faith and before any threat is foreseeable. 4.2 Succession Planning The common mechanisms used to manage succes - sion of a family business are trusts or companies, out - lined in 2.6 Transfer of Assets: Vehicle and Planning Mechanisms .
Historically, it was common to hold business assets until death because they would attract unlimited relief from IHT under BPR. Further, on death, there is a free uplift in the base cost of the assets for CGT purposes. It was therefore advantageous to hold onto the assets. Since 100% BPR has been limited to the first GBP2.5 million, some business owners have begun giving away shares in the family business as a PET, hoping to survive seven years. This does not give rise to an immediate CGT charge, as holdover relief is available for gifts of business assets. Nevertheless, it is less advantageous for CGT purposes than holding until death, as the recipient of the gift does not benefit from an uplift in the base cost. 4.3 Transfer of Partial Interest Ordinarily, if only a partial interest in a company is transferred, the market value of the shares will be par - tially discounted, to reflect the lack of marketability and control inherent in a minority shareholding. For the purposes of IHT, the related property rules will apply where assets are held by both a person and either: • that person’s spouse; or • a charity, charitable trust or limited list of other bodies following a transfer to that body by that person. If the value of those assets together is greater than the sum of the values of those assets held separately, the related property rules aggregate the value of the assets and attribute an appropriate portion of that value to the person’s estate. The effect of these rules is to ignore any minority discount. 5. Wealth Disputes 5.1 Trends Driving Disputes The explosion of wealth over a generation or two has led to multiple disputes between heirs. Disputes take several forms:
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