Changes in shareholdings: investments forming part of the new holding
The legislation does not clearly indicate what figure to take for the unadjusted value in respect of investments forming part of a new holding resulting from a transaction under IHTA84/S183. By analogy with IHTA84/S187 (5) - see also the instructions on the attribution of values (IHTM34240) - you should take
- a proportion of the unadjusted value of the new holding (which is the same as the unadjusted value of the original holding)
- based on the respective values on death of the investments sold or exchanged and of the new holding.
A trust fund includes 1,000 A Ltd shares valued immediately before death at £1,000. Two months after the death the trustees take up a 1 for 2 rights issue at £1 per share (paying £500). There is now a new holding of 1,500 shares and the date of death value of £1,500. Six months later they sell half the holding for £200.
Applying the formula in IHTA84/S183 (5), the value on death of the investments sold is
|£200 x (£1,000-£0)||= £750|
Apart from IHTA84/S188, the loss of sale would be £750 - £200 = £550.
But since this exceeds the unadjusted value of
|£ 750||x £1,000||= £500|
The relief is restricted (IHTM34230) under S188 and the sale value is treated as:
£750 - £500 = £250, making a loss of £500.
You should refer any case where this approach is resisted to Technical (IHTM01081).