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HMRC internal manual

Shares and Assets Valuation Manual

Other compliance matters: transactions with relevance for more than one tax

If you are asked to value shares or another asset for the purpose of one tax, you should consider whether there are implications for other taxes.

Example 1

A gift to a connected person is referred by an Inspector to SAV to consider the market value on disposal for CGT purposes. If the person making the disposal has died within seven years of gift, the transfer will be a failed PET and (subject to the availability of Business Relief) may have to be cumulated with the transferor’s death estate. The position is the same for a sale at an undervalue to a connected person, which is not covered by section 10 IHTA 1984.

It will obviously be particularly important to bring such a transfer to the attention of the Trusts and Estates caseworker if business relief will not be due but, even if it is, you should still obtain the full name and date of death of the transferor and report the transfer to IHT. You should, if possible, indicate a range of likely values and comment on whether business relief is available or not. This information will help the Trusts and Estates caseworker to examine any pattern of giving by the transferor. Moreover, except for transfers within certain de minimis limits, the executors are under an obligation to report all failed PETs to HMRC, even where 100% BR is due.

Example 2

Mr B transfers his 500 shares in his family company to a discretionary trust. You are asked to consider the value of the shares for CGT purposes. Although business relief may be available, a gift to a discretionary trust is not a PET, so you should advise Trusts and Estates to discuss with their IHT specialists, giving full details including an estimate of value and whether business relief will be available. [On or after 22 March 2006, almost all transfers into trust (whether the trust is a discretionary one or not) are chargeable when made rather than PETs. For events on or after that date, you should mention possible IHT implications when updating Trusts and Estates.

Example 3

Trustees appoint shares in a discretionary trust fund to a beneficiary. If you are considering the market value of the shares for CGT purposes, you should bear in mind that (subject to business relief) there might also be an IHT charge against the trustees as a result of the appointment and refer to this when updating Trusts and Estates.

Example 4

You are asked to consider the value for CGT purposes of shares in a property investment company acquired by trustees under the will of the original owner. SAV did not consider the value of the shares for inheritance tax purposes on the death. You should obviously liaise with Trusts and Estates (IHT) about whether the shares were taxable on death or whether, for example, they qualified for an exemption such as spouse exemption. If the shares were taxable property, Trusts and Estates will advise on what further action is required.

These examples are illustrative and refer to requests for valuations for CGT purposes - but the same principle applies irrespective of the taxes impacted by the valuation you are considering. You need to ensure all the case owners that the change in value could impact are involved.    

Some of the relevant factors in relation to Inheritance Tax are:

  • Gifts to discretionary trusts are not PETs;
  • With effect from 22 March 2006, the FA 2006 made fundamental changes to how settled property is treated for IHT purposes. The great majority of transfers into trust (not just into discretionary trusts) are now chargeable when made, subject to business relief. In addition, some life interest trusts (as well a discretionary trusts) will be liable to ten-year charges and exit charges.
  • Before 18 March 1986, all transfers were chargeable when made, and tax would be payable at once provided, after reliefs and exemptions, the taxable limit was exceeded;
  • Business Relief is not available for shares in certain types of company and unless certain conditions are met;
  • It is for occasions of charge (including deaths which cause PETs to fail) on or after 6 April 1996, that the rate of BR was extended to 100% for all qualifying shares;
  • Loans and so on to companies from a deceased person or transferor do not qualify for business relief;
  • A disposal by a company (for example a gift or a transfer at an undervalue) can be treated as a transfer by the shareholders
  • If you are unsure whether the matter will be relevant for another tax, you should nonetheless refer the matter, so that it can be considered by the appropriate person (the IHT caseworker or the Inspector).
  Additional Guidance: SVM150000