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Share Valuation

Also known as: Stock Valuation, Equity Valuation

Definition

Share valuation is the process of determining what company shares are worth for inheritance tax and probate purposes, using HMRC-approved methods based on whether shares are publicly traded or privately held.

Accurate valuation matters because it determines inheritance tax liability and establishes the base cost for future capital gains tax. Incorrect valuations trigger HMRC penalties.

What Does Share Valuation Mean?

Under the Inheritance Tax Act 1984, executors must value shares at their "open market value"—the price a willing buyer would pay a willing seller on the date of death. HMRC's Inheritance Tax Manual provides specific valuation methods depending on whether shares are listed on a stock exchange or held in private companies. This valuation determines inheritance tax liability, enables executors to obtain probate, and establishes the capital gains tax base cost for beneficiaries who inherit the shares.

For listed shares traded on stock exchanges, HMRC requires the "quarter-up" method. Find the lowest and highest closing prices on the date of death from the Stock Exchange Daily Official List. Calculate one quarter of the difference between these prices and add it to the lower price. For example, if shares closed between 1091p and 1101p, the difference is 10p. One quarter of 10p is 2.5p. Add this to 1091p for a quarter-up value of 1093.5p per share. If Emma owned 500 shares valued at 1093.5p each, her shareholding is worth £5,467.50 for inheritance tax purposes. Stockbrokers typically provide date-of-death valuations using this method, which executors report on form IHT411.

Private company shares require professional valuation because no public market exists to establish prices. HMRC's Shares and Assets Valuation team or specialist valuers assess the company's trading performance, assets, liabilities, future prospects, and comparable transactions. Crucially, they apply discounts for minority shareholdings that lack voting control and are difficult to sell. A 30% shareholding in a company worth £800,000 isn't automatically worth £240,000—professional valuers might apply 40-50% minority discounts, reducing the value to £120,000-£144,000. Conversely, shareholdings exceeding 75% receive minimal discounts because they provide effective control over company decisions. Executors report unlisted share valuations on form IHT412.

Business Property Relief can reduce inheritance tax on qualifying trading company shares by 50-100%, depending on the shareholding type. However, from 6 April 2026, full 100% relief is capped at £1 million of combined business and agricultural property, with qualifying assets above this threshold receiving only 50% relief. Business owners with substantial shareholdings should review valuations before 2026 to understand these changes' impact.

Common Questions

"How are listed shares valued when someone dies in the UK?" Listed shares are valued using the 'quarter up' method required by HMRC. Find the lowest and highest closing prices on the date of death, calculate one quarter of the difference, and add this to the lower price. For example, if shares closed at 1091p-1101p, the quarter-up value is 1093.5p. Stockbrokers typically provide these valuations, and you'll need them to complete the probate application.

"How are unquoted company shares valued for inheritance tax?" Unquoted shares require professional valuation by HMRC's Shares and Assets Valuation team or specialist valuers. They consider the company's trading performance, assets, future prospects, and apply appropriate discounts for minority shareholdings or lack of marketability. Don't use face value or balance sheet figures—HMRC requires open market valuations reflecting what a hypothetical buyer would actually pay.

"What is a minority discount in share valuation?" A minority discount reduces the value of shares that don't provide control over the company. For shareholdings under 15%, discounts can reach 70-80% of pro-rata value, reflecting limited voting power and difficulty selling minority stakes. Shareholdings over 75% typically receive minimal discounts as they provide effective control. The exact discount depends on shareholder agreement restrictions, company prospects, and marketability.

Common Misconceptions

Myth: "I can just use the company's balance sheet value to value my private company shares for my estate."

Reality: HMRC requires open market valuation, not book value. Balance sheet figures rarely reflect what a hypothetical buyer would pay for shares. Professional valuers consider trading performance, future prospects, market comparables, and apply appropriate discounts for minority holdings or lack of marketability. Using face value or book value will almost certainly trigger HMRC challenges and potential penalties.

Myth: "Because I own 40% of a company worth £1 million, my shares are worth £400,000."

Reality: A 40% minority shareholding is typically worth significantly less than 40% of company value because it lacks control and is difficult to sell. Professional valuers apply minority discounts of 20-50% or more depending on shareholder agreement restrictions. Your 40% holding might be valued at £250,000-£300,000 after appropriate discounts. Conversely, shareholdings over 75% may command premiums because they enable complete control.

  • Business Valuation: Share valuation applies business valuation principles to determine the worth of specific shareholdings in companies.
  • Company Shares: Company shares is the general term for share ownership; share valuation determines their worth for inheritance tax purposes.
  • Controlling Interest: Controlling interest shareholdings exceeding 50% significantly affect share valuation and typically eliminate minority discounts.
  • Unquoted Company: Unquoted company status determines whether quarter-up or professional valuation methods apply to shares.
  • Estate Valuation: Share valuation is a critical component of overall estate valuation for calculating probate and inheritance tax liability.

Need Help with Your Will?

If you own company shares, understanding their valuation helps you make informed decisions about passing business ownership through your will. Accurate planning now prevents inheritance tax surprises and ensures smooth business succession for your beneficiaries.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.