188体育

This situation is not straightforward and is best looked at by means of an example

Example

Zoe鈥檚 estate includes a holding of 1,000 qualifying shares valued at 拢2,000.聽 The shares are bequeathed to Clive, the sole executor.聽 There is a rights offer on a 1 for 1 basis at 拢1 per share.聽 Clive sells the right to accept 500 shares for 拢210 on the Stock Exchange.聽 Clive accepts the remaining 500 shares, at a cost of 拢500, making a new holding of 1,500 shares.

Clive subsequently sells 1,000 shares for 拢1,300 and later the remaining 500 shares for 拢650, both sales being at the same price per share.

In accordance with the general approach for calculating the losses on the sales:

• the value on death has to be increased by 拢500 to reflect the cost of the new shares and
• the sale price of the shares sold have to be increased to reflect the sale proceeds of the rights, 拢210.

Under IHTA84/S183 (3) the value on death of the new holding of 1,500 shares is the original date of death value plus the cost of the new shares, i.e. 拢2,000 + 拢500 = 拢2,500.

The value on sale of the 1,000 shares sold is (under IHTA84/S181) 拢1,300 + (²/₃ 麓 拢210) = 拢1,440.聽 Applying the formula (IHTM34183) in IHTA84/S183 (5) the value on death of the investments sold is

Vs (H-S) 梅(Vs + Vr)

拢1,440 (拢2,500 - 拢0) 梅 (拢1,440 + 拢650) = 拢1,722

There is a loss on sale of 拢1,772 - 拢1,440 = 拢282

The value on sale of the 500 shares subsequently sold is (under IHTA84/S181) 拢650 + (1/3 x 拢210) = 拢720.聽 Again applying the formula in IHTA84/S183 (5), the value on death of the investments sold is

拢720 (拢,2,500 - 拢1,722) 梅 拢720 = 拢778

There is a loss on sale of 拢778 - 拢720 = 拢58

If the application of the formula in this sort of case is challenged by the taxpayer, please refer to Technical (IHTM01081).