Friday, 6 January 2012

Inheritance tax valuation of similar assets owned collectively

The default position for valuing gifts is NOT open market values (i.e. how much the assets would fetch to the donee if sold on the open market.

Instead, we measure the value of gifts by how much the donor has lost as a result of the gift, i.e. by how much the donor's estate has gone down ("loss to the donor principle").

For the purpose of valuing similar assets owned jointly by spouses (e.g. shares), we look at them as one - doing so increases the value of shares when together spouses have control in the company (more than 50%) but individual shareholdings looked in isolation do not.

However, when similar assets are held jointly by individuals who are not married, the position is different. We value gifts of those assets using the loss to donor principle as explained above. But, there are special rules for real property (land and buildings) to take account of market realities.

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