SVM107140 - Capital Gains Procedures: Death and CG

Market value at the date of death

Section 274 Taxation of Chargeable Gains Act (TCGA) 1992 provides that where the value of an asset forming part of an estate has been ascertained for Inheritance Tax (IHT) purposes on a person's death, that value shall be taken to be the market value of the asset for Capital Gains (CG) purposes at the date of death.  This is notwithstanding the fact that the holding may have been valued as part of a larger holding by virtue of the estate concept and related property provisions.

If

  • the IHT threshold was not exceeded on the death, or
  • the shares passed on the death to an exempt beneficiary such as the deceased’s spouse or civil partner, or
  • The shares qualified for 100% BR in full with no tax payable

the valuation will not have been ascertained for IHT purposes, and it will be necessary to consider it afresh when the acquisition value is needed for CG purposes.

Section 274 TCGA only applies to assets, including shares, comprised in a death estate. There is no corresponding provision for assets which are the subject of a lifetime transfer. So, if a value is agreed for shares given away by a transferor for IHT purposes, that value will not automatically apply for CG purposes. We would expect the same value to be agreed for the purposes of both taxes if a transferor has given away all their shares and there is no related property for IHT purposes. Where there is related property or the transferor retained other shares after the transfer, normally different values would be appropriate for the purposes of the different taxes - since the 'loss to the estate' and related property concepts do not apply to CG valuations.

When dealing with requests for a valuation for CG purposes at a date of death, you should take care that the total holding owned personally by the deceased is valued and not just the holding acquired by a particular legatee. Section 62 TCGA 1992 requires the market value of all assets under a person’s will or intestacy in an estate to be valued together, not just the assets going to any particular beneficiary. Related property, on the other hand, is an IHT valuation principle. It is not be taken into account for CG purposes unless a value on death has been ascertained for IHT purposes, related property was taken into account in arriving at that value and, by virtue of Section 274, that value has become the beneficiaries' acquisition value.

If a person has become absolutely entitled to settled property or a share in it on the death of a life tenant, under Section 71(1) TCGA 1992, the trustees are deemed to have disposed of all the property to which beneficiaries are now absolutely entitled - so the total holding of the trustees needs to be valued.

For example a person is life tenant of a trust fund which comprises 60 shares in an unquoted company. On their death, the shares go absolutely to three beneficiaries, A, B and C. If you are asked to consider the acquisition value of A’s 20 shares, you should value 60 shares and attribute one third of the total value to A. Please see the CG Manual at CG37370. Of course, if a value of the shares has already been ascertained for IHT purposes on the life tenant’s death, that value will apply automatically for CG purposes also, so there will be no need to consider the matter further.

Section 71(1) TCGA also applies in other situations where beneficiaries become absolutely entitled to settled property as against trustees - see the CG Manual at CG37100 onwards for details.

If the dispositions of a person’s will or intestacy have been varied by an instrument in writing within two years of the death (Section 62(6) TCGA 1992), the changes are treated as having been made by the deceased and as having taken effect from the date of death, when an election under section 62(7) TCGA 1992 is made.

Additional Guidance: SVM150000