IHTM34184 - Changes in shareholdings: investments forming part of the new holding

The legislation does not clearly indicate what figure to take for the unadjusted value in respect of investments forming part of a new holding resulting from a transaction under IHTA84/S183.  You should take

• a proportion of the unadjusted value of the new holding (which is the same as the unadjusted value of the original holding)
• based on the respective values on death of the investments sold or exchanged and of the new holding.

Example

The Abacus trust fund includes 1,000 Armitage Ltd shares valued immediately before death at £1,000.  Two months after the death the trustees take up a 1 for 2 rights issue at £1 per share (paying £500).  There is now a new holding of 1,500 shares and the date of death value of £1,500.  Six months later they sell half the holding for £200.

Applying the formula in IHTA84/S183 (5), the value on death of the investments sold is

£200 × (£1,500 - £0) ÷ (£200 + £200) = £750

Without the provisions in IHTA84/S188, the loss of sale would be;

£750 - £200 = £550.

But this exceeds the unadjusted value which is

£750 ÷ £1,500 × £1,000 = £500

The relief is restricted (IHTM34230) under IHTA84/S188 and the sale value is treated as:

£750 - £500 = £250, making a loss of £500.

You should refer any case where this approach is resisted to Technical (IHTM01081).