Stocks and shares: valuation: shares
Authority for valuation methods
The valuation methods for Inheritance Tax (IHT) were traditionally used for Estate Duty, principally the ‘quarter up’ price of shares. They are also prescribed in statutory form, latterly at TCGA92/S272(3) for Capital Gains Tax (CGT) purposes. From 6 April 2015, the method of valuation for CGT was changed by The Market Value of Shares, Securities and Strips Regulations 2015 (SI 2015/616). The value used for most CGT purposes is the figure one-half of the way up from the lowest to the highest closing prices of the day.
However, these regulations do not apply to IHT so the value used is still the quarter up price at the date of the chargeable event. The quarter up price is the figure a quarter of the way up from the lowest to the highest closing prices of the day, as listed by the various market makers (IHTM25262).
Where the value of the shares has been ascertained for IHT (IHTM09241) this figure will still be used as the acquisition cost for CGT purposes following a death (TCGA92/S274).
Example of quarter up value
Klaus owned 1,250 10p ordinary shares in Abbey National Plc. He died on 25 January. The Financial Times for 26 January tells you that the end of day quotation for the date of death was ‘p1091 - 1101’.
To work out the value of the shares, multiply the number of shares by the ‘quarter up’ price. This is the lower price (1091) plus 1/4 of the difference between the two prices (quarter of 10p = 2.5p). The ‘quarter -up price’ is 1091 + 2.5 = 1093.5p per share. The total holding will be 1093.5 x 1,250 = £13,668.75.
Valuation in practice
If the price shown for a listed share does not fall within the price range for the date of death, the quarter up price should be used as the appropriate value to be adopted.
In most cases you will not need to challenge the prices included if they fall within the price range given or the bargains done. For example, if a bargain (or bargains) is marked on the list and the mid-bargain price is used you can generally accept this even if it is lower than the quarter up price. The mid-bargain price is halfway between the highest and lowest bargains for the particular share recorded for the relevant day, excluding bargains at special prices. ‘Bargains’ are the prices at which shares actually changed hands in deals brokered by the market makers.
Watch out for additional markings (IHTM18098), such as ‘XD’ which are common and will affect the chargeable value.
UK listed foreign shares
Foreign shares listed on the London Stock Exchange may have their value given in the currency of their country, for example $10. However, the price shown will be in sterling. You can value these shares as described above.