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HMRC internal manual

Shares and Assets Valuation Manual

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HM Revenue & Customs
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Capital Gains Tax procedures: death and CGT

Market value at the date of death

Section 274 TCGA 1992 provides that where the value of an asset forming part of an estate has been ascertained for Inheritance Tax purposes on a person’s death, that value shall be taken to be the market value of the asset for CGT purposes at the date of death. The value ascertained for IHT purposes applies equally for CGT whether agreed unconditionally or without prejudice. This is notwithstanding the fact that the holding was valued as part of a larger holding by virtue of the estate concept and related property provisions.

If

  • the tax 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
  • the shares qualified for 100% BR on the death,

so that it was unnecessary to agree a value for IHT/CTT purposes, the value of the shares will not have been ascertained and it will be necessary to consider it afresh when the acquisition value is needed for CGT purposes.

If you agree that 100% BR is due on shares held in a death estate and you are writing to the taxpayer or his/her agents, you should confirm that the value returned has not been agreed and that it will not, therefore, automatically become the market value of the shares on the death for CGT purposes.

In summary, if IHT has been paid on the death estate, including on the shares at an agreed value (in other words not where they are exempt or qualify for 100% BR), and the IHT examination has been finalised, S.274 automatically makes the agreed (ascertained) value of the shares the acquisition value for CGT purposes on the death. If the shares were exempt for example as passing to the spouse or subject to 100% Business Relief or the estate did not exceed the taxable limit, then their value will not have been ascertained - and any value required for CGT purposes at the death will have to be negotiated in the normal way. For the avoidance of doubt at a later date, it is best to make it clear to the taxpayer/agents, when you are dealing with the IHT position, that no value has been ascertained within the meaning of S.274 TCGA.

S.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 CGT purposes. We would expect the same value to be agreed for the purposes of both taxes if a transferor has given away all his 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 CGT valuations.

When dealing with requests for a valuation for CGT 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. S.62 TCGA 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 a pure IHT concept. It is not be taken into account for CGT 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 S.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 S.71(1) TCGA, 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 his 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 CGT purposes also, so there will be no need to consider the matter further.]

S.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 (S62(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