Guidance: Valuing stocks and shares for Inheritance Tax

Listed stocks and shares

These are all stocks, shares, debentures and other securities listed on the Stock Exchange Daily Official List and should be valued for Inheritance Tax when someone dies.

These include:

• unit trusts

• investment trusts

• open-ended investment companies

• shares held in an Individual Savings Account (ISA)

• foreign shares listed on the London Stock Exchange

Finding the value yourself

You can value stocks and shares quoted on the London Stock Exchange by finding the price of the shares in the financial pages of a newspaper, or by looking on the newspaper’s website or a commercial website.

You should make a list of all the shares, including the name, nominal value (also known as face value) and types of shares. Enter the price given for each of the shares the person who died owned, 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 share prices for the day before.

Using a share valuing service

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

To work out the share price, you need to work out what’s known as the ‘quarter-up’ price.

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

In this example you would:

1. Find the difference between the higher price and the lower price, 1101p -1091p = 10p.

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

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

So, the quarter up price is 1093.5p.

Working out the total value of the shares

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

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

Working out the value of a bonus or dividend

If a dividend was due when the deceased died, the shares will be marked ‘XD’. This shows that the dividend will be paid to the estate of the person who died and you’ll need to include a value.

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

Sometimes the dividend may be given as a percentage, for example 3%. You then work out the value of the dividend by using the appropriate percentage of the nominal or face value of the shares.

Example

A bonus of 3% on 400 shares with a value of £1 would be £12 (£400 × 3% = £12). You should 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 overseas companies.

Stock Exchange markings

The Stock Exchange Daily Official List includes several markings that can affect the value of the stocks and shares.

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

You should include any increase in your valuation and if the value decreases, you’ll need to deduct the adjustment from the value you include for the shares.

Sometimes the person who died might be entitled to some new shares at the date of their death.

The markings are:

• ‘XD’ (ex-dividend) — the dividend that’s 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 stock plus interest) — the interest that’s accrued is part of the value at the date the person died, you should include the net interest (net of Income Tax at the basic rate) that has accrued from the date interest was last paid up to the date the person died in your valuation

• ‘IK … X’ (‘gilts’ minus interest) and ‘IM … X’ (fixed interest securities, loan and debenture stock minus interest) — take the net interest that’s accrued from the date of death to the date interest was paid, away 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-capitalisation) — include the new shares

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

• ‘XE’ (ex-entitlement) — include the new shares or warrants, if any

If you do not know how many new shares, rights or warrants to include, the company’s registrar should be able to tell you. Include the new shares, rights or warrants with the original holding in your valuation.

Unit trusts

Newspapers do not show the value of dividends due on unit trusts, so you’ll need to find out the value from the fund manager.

UK government and municipal securities

You should include all UK government and municipal securities such as:

• Treasury Stock, Exchequer Stock, Convertible Stock, Consolidated Stock and Loan, Funding Stock, Savings Bonds, Victory Bonds, and War Loans

• government stock held on the British Government Stock Register

• all UK municipal securities, mortgages, debentures and stock in counties, cities or towns, dock, harbour and water boards, Port of London Authority, Agricultural Mortgage Corporation and Northern Ireland municipal stock

Use the closing price on the day the person died.

Shares held in an ISA

Only shares listed on a recognised stock exchange or traded on an Alternative Investment Market can be held in an ISA.

If the person who died had shares in an ISA you should ask the ISA fund manager for a valuation. Use the closing price on the day the person died.

You must include a figure for any uninvested cash held in the ISA, but do not include any other cash or insurance policies held in an ISA with the value for the shares.

Shares listed on a foreign stock exchange can also be held in an ISA. You should include foreign shares (other than those listed on the London Stock Exchange) in your valuation.

If the stock exchange 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 either:

You can use the price on whichever day is lower.

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

Unlisted stocks and shares

Where a company is not classified as listed because, for example, it is not listed on the London Stock Exchange Main Market or foreign recognised stock exchange, its shares and securities are classified as unlisted.

Note details of any unlisted stocks or shares owned by the person who died.

Unlisted stocks and shares include:

• shares in a private family company which are not listed on the Stock Exchange

• shares listed on the Alternative Investment Market, which may be part of an ISA

• shares traded on OFEX (Off Exchange), which is an unregulated trading facility for dealing in unquoted shares

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

For shares in a private company, you should use the open market value of the shares. You may need to contact the company’s secretary or accountant to get this value.

Do not include just the face value of the shares for your valuation unless it accurately reflects the open market value.

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

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

• the value of the company’s assets

• the economic background when the person died

• the size of the shareholding and the shareholders’ rights

• the company’s dividend policy

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