Summary
- Changes to Business and Agricultural Relief now cap 100% IHT relief at £1m, making share valuations far more tax-sensitive.
- Previously, simple valuations often sufficed as shares in trading companies were usually fully relieved from IHT.
- With excess value now exposed to IHT (effectively 20%), robust and defensible valuations are essential.
- HMRC guidance on valuation has not changed, but scrutiny has increased, placing greater importance on the valuation methodology used.
As a consequence of the overhaul to IHT Business Relief and Agricultural Relief in last October’s budget, the calculation used to determine the value of shares on death (and for lifetime transfers) has become much more tax-sensitive.
Prior to the budget, where it was clear that a company was a ‘trading’ company and thus the shares would be eligible for Business Relief, it was not uncommon for only a very simple calculation to be performed in order to determine the value of the shares on death.
Where it would not otherwise impact on the estate’s IHT position, this would normally suffice as there is no bounty to be had for HMRC in negotiating the valuation. Whether the value of the shares was say £100,000 or £120,000 would not usually be of consequence. Either way the value of the shares would be relieved.
There are of course exceptions to this (residence nil rate band tapering can be impacted by the share value), but for many executors, the calculation of the value of a deceased taxpayers shares in an unlisted trading company was only a small part of the wider matter of administrating an estate.
That position has now changed significantly. Because of the £1m cap on 100% Business Relief (only 50% relief applies thereafter), an estimate or a single side of A4 just will not cut the mustard!
Take the case of an individual with 100% of the shares in a trading company estimated to be worth £10m, who has held them for many years. Pre-budget, 100% IHT relief so the valuation has little tax sensitivity. Post-budget, only £1m of that value is afforded total IHT relief. The rest (£9m) is exposed at an effective 20% tax rate. The valuation approach is then critical in determining the eventual IHT liability.
In that case, you would ideally hope for a robust valuation document to present to HMRC with the IHT Return in defence of the value attributed to the shares. HMRC’s Shares and Assets Valuation (SAV) team are knowledgeable and the valuation document should need to be prepared with the mindset that it would have to stand up to scrutiny from SAV if challenged.
Has there been any updated valuation guidance issued by HMRC? The short answer is, no. This isn’t a fault on the part of HMRC or their SAV team – the same valuation techniques that have always applied continue to apply in the same manner. It is just that the IHT relief changes have placed much greater importance on the valuation approach used.
Note: this article is not maintained and was written in July 2025
