How to Value Stocks and Shares for Inheritance Tax

Introduction

When someone dies, all stocks, shares, and investments they owned must be valued correctly for Inheritance Tax purposes. The valuation method depends on whether the investments are listed on a stock exchange or held privately, and several special rules can affect the final figure you need to report to HMRC.

Listed Stocks and Shares

Listed stocks and shares are those that appear on the Stock Exchange Daily Official List. This category includes ordinary shares, unit trusts, investment trusts, open-ended investment companies, shares held in an Individual Savings Account (ISA), and foreign shares listed on the London Stock Exchange.

Finding the Share Price

You can find share prices yourself using the financial pages of a newspaper or online sources. Use the closing value on the day the person died. Remember that a newspaper printed on the day of death will show the previous day's prices.

If you use a professional valuation from a stockbroker, they will provide an end-of-day quotation shown as a range, for example 1091p to 1101p. You must calculate what's known as the 'quarter-up' price:

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

2. Work out one quarter of this difference: 10p × 0.25 = 2.5p

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

The quarter-up price in this example is 1093.5p.

Calculating Total Value

To work out the total value, multiply the number of shares by the price. For example, 100 shares valued at 1093.5p equals £1,093.50 (100 × 1093.5p).

Stock Exchange Markings

The Stock Exchange Daily Official List uses various markings that affect share valuations. These markings tell you whether additional amounts should be added to or deducted from the basic share price.

Key Markings to Watch For

'XD' (ex-dividend) — The dividend that was due remains payable to the deceased's estate. Include the net value of the dividend (after Income Tax has been deducted) in your valuation. To calculate this, multiply the number of shares by the amount of dividend per share. If the dividend is shown as a percentage (for example 3%), apply this percentage to the nominal (face) value of the shares. For instance, a 3% bonus on 400 shares with a face value of £1 would be £12 (£400 × 3% = £12).

'IK' and 'IM' (plus interest) — For government securities ('gilts') and fixed interest securities, loan and debenture stock, the interest that has built up is part of the value at death. Include the net interest (after Income Tax at the basic rate) that accumulated from the date interest was last paid up to the date of death.

'IK … X' and 'IM … X' (minus interest) — Take away the net interest that accrued from the date of death to the date interest was paid from the stock value. If a separate interest payment was received, include the net amount in your valuation.

'XC' (ex-capitalisation), 'XR' (ex-rights), and 'XE' (ex-entitlement) — These markings mean the deceased was entitled to new shares, rights, or warrants at the date of death. Include these new entitlements with the original holding in your valuation. If you don't know how many new shares to include, contact the company's registrar.

Unit Trusts

Newspapers don't show dividend values for unit trusts. You'll need to contact the fund manager directly to find out the value of any dividends due on the date of death.

UK Government and Municipal Securities

You must include all UK government securities such as Treasury Stock, Exchequer Stock, Convertible Stock, Consolidated Stock and Loan, Funding Stock, Savings Bonds, Victory Bonds, and War Loans. Also include government stock held on the British Government Stock Register and all UK municipal securities, including those from counties, cities, dock and harbour boards, the Port of London Authority, and the Agricultural Mortgage Corporation.

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. Ask the ISA fund manager for a valuation using the closing price on the day of death.

Include any uninvested cash held in the ISA, but don't include other cash or insurance policies held within the ISA wrapper. Foreign shares (other than those listed on the London Stock Exchange) held in an ISA should also be included in your valuation.

When the Stock Exchange Was Closed

If the person died on a day when the stock exchange was closed (such as a weekend or bank holiday), you can use the closing price from either the last trading day before death or the first trading day after death — whichever is lower.

You can choose which day to use separately for each shareholding. For example, if someone died on Sunday, you could use Friday's price for one shareholding and Monday's price for another, depending on which is lower.

Unlisted Stocks and Shares

Shares not listed on the London Stock Exchange Main Market or a foreign recognised stock exchange are classified as unlisted. This includes:

• Shares in a private family company
• Shares listed on the Alternative Investment Market (which may be held in an ISA)
• Shares traded on OFEX (Off Exchange), an unregulated trading facility

You can value Alternative Investment Market and OFEX shares using the same methods as quoted stocks and shares.

For shares in a private company, you must use the open market value. Contact the company secretary or accountant to obtain this figure. Don't simply use the face value (nominal value) unless it accurately reflects the true market value. For example, 1,000 £1 ordinary shares have a face value of £1,000, but this is unlikely to represent their actual market value.

Sources

• Valuing stocks and shares for Inheritance Tax

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.