Valuation of stocks and shares for inheritance tax

Shares and listed shares

These are all stocks, shares, debentures and other securities listed on the Official Daily List of the Exchange and must be valued for estate tax purposes in the event of death.

These include:

  • unit trusts

  • investment trusts

  • open-ended investment companies

  • shares held in an Individual Savings Account (IS A)

  • foreign stocks listed on the London Stock Exchange

Find the value by yourself

You can evaluate stocks and shares listed on the London Stock Exchange by finding the stock price in the financial pages of a newspaper, or by looking at the newspaper’s website or a trading website.

You should make a list of all the shares, including the name, face value (also called face value), and types of shares. Enter the price given for each of the shares owned by the deceased, considered together as a unit.

Use the closing value of the shares on the day the person died. Remember that a newspaper printed on the day the person died will have the stock price of the previous day.

Use a stock valuation service

If you use a professional valuation from someone like a stockbroker, they will give you an end-of-day quote for each of the stocks. The price will appear as a range, for example 1091p to 1101p.

To calculate the stock price, you need to determine what is called the “quarter-up” price.

This is the lower price, plus a quarter of the difference between the 2 prices.

In this example, you would:

  1. Find the difference between the highest price and the lowest price, 1101p -1091p = 10p.

  2. Calculate a quarter of this difference, 10p × 0.25 = 2.5p.

  3. Add this to the lower price, 1091p + 2.5p = 1093.5p.

So the price of the quarter is 1093.5p.

Calculation of the total value of the shares

To calculate the total value of shares, multiply the number of shares by the price.

For example, if the deceased owned 100 shares and their value was 1093.5p, the value of the shareholding would be £109,350 (100 x 1093.5p).

Calculating the value of a bonus or dividend

If a dividend was due at the time of the deceased’s death, the shares will be marked “XD”. This shows that the dividend will be paid to the deceased person’s estate and you will need to include a value.

To calculate the dividend value, multiply the number of shares by the dividend amount per share.

Sometimes the dividend can be given as a percentage, for example 3%. You then calculate the value of the dividend using the appropriate percentage of the face or face value of the shares.

Example

A 3% bonus on 400 shares worth £1 would be £12 (£400 × 3% = £12). You must use the “net” price after income tax has been deducted. Newspapers and websites give the ‘net’ price for UK companies, but the ‘gross’ price for foreign companies.

Stock Marks

The official daily list of the Exchange includes several markings that can affect the value of stocks and shares.

Some markings increase the value of shares and some markings decrease the value.

You must include any increase in your valuation and if the value decreases you will need to deduct the adjustment from the value you include for the shares.

Sometimes the deceased person may be entitled to new shares on the date of death.

The markings are:

  • ‘XD’ (ex-dividend) – the dividend that is due remains payable to the deceased – include the net value of the dividend in your valuation

  • “IK” (“gilts” plus interest) and “IM” (fixed interest securities, loan and debenture plus interest) — accrued interest is part of the value at the date of death of the person, you must include net interest (less income tax at the basic rate) that accrued from the date interest was last paid to the date the person died in your assessment

  • ‘IK…X’ (‘gilts’ less interest) and ‘IM…X’ (fixed interest securities, loans and debentures less interest) – take the net interest accrued from the date of death until the date on which the interest have been paid, far from the value of the stock and if a separate interest payment has been received, include the net amount of the interest payment in your valuation

  • ‘XC’ (ex-capitalization) — includes new shares

  • ‘XR’ (ex-rights) – account for the value of the new shares or rights

  • “XE” (ex-right) — includes new shares or warrants, if any

If you are unsure how many new shares, rights or warrants to include, the company registrar should be able to tell you. Include the new shares, rights or warrants with the original interest in your valuation.

Mutual fund

Newspapers do not show the value of dividends due on mutual funds, so you will need to find out the value from the fund manager.

UK government and municipal securities

You must include all UK government and municipal titles, such as:

  • Treasury Stocks, Exchequer Stocks, Convertible Stocks, Consolidated Stocks and Loans, Finance Stocks, Savings Bonds, Victory Bonds and War Loans

  • government shares held on the UK government share register

  • all municipal securities, mortgages, debentures and shares of the United Kingdom in counties, towns or cities, docks, harbors and water boards, the Port of London Authority, the Agricultural Mortgage Corporation and Northern Ireland Municipal Actions

Use the closing price on the day the person died.

Shares held in a IS A

Only shares listed on a recognized stock exchange or traded on an alternative investment market may be held in a IS A.

If the deceased person had shares in a IS A you should ask the IS A fund manager for an assessment. Use the closing price on the day the person died.

You must include a figure for any uninvested cash held in the IS Abut do not include other cash or insurance policies held in a IS A with the value of the shares.

Shares listed on a foreign stock exchange may also be held in a IS A. You should include foreign stocks (other than those listed on the London Stock Exchange) in your assessment.

If the stock market was closed on the day of death

If the person died on a day when the stock exchange was closed, you can use the closing price on:

You can use the lowest day price.

For example, if the person died on Sunday and Monday’s closing price was lower than the previous Friday’s price, you can use Monday’s price. You can choose to use the Monday or Friday price for each separate shareholding.

Shares and unlisted shares

Where a company is not classified as listed because, for example, it is not listed on the main market of the London Stock Exchange or on a recognized overseas stock exchange, its shares and securities are classified as unlisted.

Write down the details of any unlisted stocks or shares held by the deceased person.

Unlisted shares and units include:

  • shares of an unlisted private family company

  • shares listed on the Alternative Investment Market, which may be part of a IS A

  • shares traded on OFEX (Off Exchange), which is an unregulated trading facility for trading unlisted equities

You will be able to value shares on an Alternative Investment Market or OFEX in the same way as stocks and listed shares.

For shares of a private company, you must use the market value of the shares. You may need to contact the company secretary or accountant to obtain this value.

Do not include only the par value of the shares for your valuation, unless it accurately reflects the open market value.

For example, the nominal value of 1,000 ordinary shares of £1 is £1,000, but this is unlikely to be the market value of the shares.

As there is no active open market for most unlisted shares, you should consult the information normally available to shareholders, such as the company’s accounts and statement of performance, and consider:

  • the value of the company’s assets

  • the economic context at the time of the person’s death

  • shareholding size and shareholder rights

  • the company’s dividend policy

You can ask HMRC, Shares and Assets Valuation to take into account the value of unlisted shares.

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