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Where Taxpayers and Advisers Meet

How to value a retention on a share sale

dominoman
Posts:60
Joined:Fri Jan 15, 2016 6:41 pm
How to value a retention on a share sale

Postby dominoman » Thu Feb 06, 2020 8:30 am

I am an executor of my father's estate.

Before he died he sold a large stake in an unlisted company for around £1M. The company retained a proportion of the money (around 100k) which is due to pay out in 12 months time, so long as certain targets are met.

This seems to be fairly common in the sale of companies where they are trying to cover themselves against the risk of a nasty skeleton being unearthed. How would we account for this retention?

For inheritance tax I'd rather not value it at 100k, especially as it isn't tradeable and might not ever be paid at all.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: How to value a retention on a share sale

Postby pawncob » Thu Feb 06, 2020 1:35 pm

HMRC suggest it's referred to Share Asset Valuation division.
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm10151
With a pinch of salt take what I say, but don't exceed your RDA

jerome.lane
Posts:237
Joined:Mon Aug 12, 2019 8:41 am
Location:Sandhurst, Berkshire
Contact:

Re: How to value a retention on a share sale

Postby jerome.lane » Fri Feb 07, 2020 4:04 pm

I suspect SAV will say £100k without any evidence that there's a risk of non payment.

The starting point is that debt must be included in the estate:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm19010

You'd have to assess the risk of non payment and value accordingly.

I assume there are no exempt beneficiaries (such as a wife?)

Understanding entire estate, Will and deferred consideration may facilitate planning to manage risks.
Jerome Lane
Tax Adviser
Telephone: 07943 005902


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