Value of minority shareholding

Value of minority shareholding

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I have a client company which has 6 shares. Two each held by the parents (one parent being the only director), and one share held by each of children.

Children now wish to give up their shares. As they are connected persons the transfer will have to be done at market value. They wish for a low valuation. I have seen an example of a 75% discount being applied to a minoriy shareholding.

The company has two small flats for rent. They have recently been valued at £150,000.

Would it be reasonable to value 1 share at 150,000 devided by 6 times 25% = £6250

It should be noted that there is full agreement between all parties.
Mark Gosling

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By wdr
22nd Feb 2007 10:26

The issue appears to be one of CGT-although there will be an IHT
On valuation of shares in a property investment company, SVD seek to argue a lower discount than 75% as attributable to minority shares.
Another issue is any provision for tax on potential chargeable gains where SVD typically will argue against a significant discount unless the properties are about to be sold-not the case here.

You may take the view that even if SVD were to argue that a 75% discount is too great, the risk of any material CGT being payable, assuming children have no other chargeable gains in the year is sufficiently low as to go ahead -but it is critical that the children file a tax return and spell out the basis on which the shares have been valued in order to give 'Veltema' closure.

The CGT could be eliminated by taking advantage of the IHT position-if thought desirable.

The way this is done is by each child creating a trust in favour of parents and gifting their shares to that trust-of which the parents could be the trustees.

This would be a chargebale event for IHT as being a 'relevant property' trust-that entitles the children to make a 'holdover' election under TCGA s260. Having regard to the figures no IHT would be payable.

At least three months later the trust could be terminated and a further s260 election made-the parents would own the shares outright.

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