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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the basic principles of computing transfers of value

Marta owns a controlling holding of 6,000 of the 10,000 shares in Zeta Ltd, valued at £12 per share. She gives 2,000 shares to her son, leaving her with 4,000 shares. Valuations: 6,000 shares are worth £12 each, and 4,000 shares are worth £6 each. What is the transfer of value for inheritance tax purposes (before exemptions)?

The transfer of value is the fall in the donor's estate, which is £48,000. Marta's estate was worth 6,000 x £12 = £72,000 before the gift and 4,000 x £6 = £24,000 after it. Valuing only the gifted shares at £12 would understate the loss.

  1. A£24,000
  2. B£48,000Correct
  3. C£36,000
  4. D£12,000

Explanation

The transfer is the loss to the donor's estate. Before: 6,000 x £12 = £72,000. After: 4,000 x £6 = £24,000. Loss = £48,000. Using £12 x 2,000 = £24,000 ignores the fall in value of the retained shares. Using only the retained shares' loss in value gives wrong figures.

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