Company shares in a deceased person’s estate are valued at their open market price on the date of death and taxed at 40% on any value above the £325,000 nil rate band. Inheritance tax on company shares can be reduced or removed altogether by Business Property Relief, but the rules change significantly from 6 April 2026: a new £2.5 million cap limits full relief, and AIM-listed shares drop from 100% relief to 50%.
How Shares Are Valued on the Date of Death
Every shareholding in the estate is valued at what it would fetch on the open market on the day the person died. Section 160 of the Inheritance Tax Act 1984 defines that as the price a willing buyer and willing seller would agree, with neither under any pressure to deal.1Legislation.gov.uk. Inheritance Tax Act 1984 – Section 160
Listed Shares: the Quarter-Up Rule
For shares traded on a recognised stock exchange, executors do not use the closing price. They apply the “quarter-up” rule: take the lower of the two prices quoted by market makers for the day, then add one quarter of the difference between the lower and higher price. Multiply that figure by the number of shares held.2HM Revenue & Customs. Inheritance Tax Manual – IHTM18093 If the death fell on a day the markets were closed, HMRC accepts the calculation from the nearest trading days either side, using whichever produces the lower figure.
Unlisted and Private Company Shares
Private company shares have no published price, so valuers look at the company’s net assets, earnings history, and comparable transactions. The figure often carries discounts because a minority stake in a private company is difficult to sell. There is no fixed percentage for those discounts; each valuation depends on the company’s circumstances, any restrictions in the articles of association, and the size of the holding.
HMRC’s Shares and Assets Valuation team reviews these figures, and an unsupported or unusually low number invites formal challenge. Most executors instruct an accountant or business valuer with private company experience.
The Rate, the Nil Rate Band, and the Spouse Exemption
Once shares are valued, they join the rest of the estate and are measured against the nil rate band. That threshold is £325,000 for the 2025/26 tax year and has been frozen at that level since 2009.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances Anything above it is taxed at 40%.
Transfers between spouses and civil partners are exempt from IHT regardless of value. Shares passing to a surviving spouse trigger no tax at that point.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances When the survivor later dies, their estate can claim any unused portion of the first spouse’s nil rate band, potentially lifting the combined tax-free threshold to £650,000. The claim is not automatic; personal representatives must make it within two years of the end of the month in which the survivor died.4Legislation.gov.uk. Finance Act 2008 – Schedule 4
Business Property Relief and the April 2026 Changes
Business Property Relief (BPR) can wipe out or halve the taxable value of shares in trading companies, and it is the single biggest factor for many share-heavy estates. Before 6 April 2026, qualifying unquoted shares attracted 100% relief with no upper limit. That is changing.
The New £2.5 Million Allowance
From 6 April 2026, 100% relief applies only to the first £2.5 million of combined qualifying business and agricultural property in an estate. Any qualifying value above that cap receives 50% relief instead.5GOV.UK. Changes to Agricultural Property Relief and Business Property Relief Where a spouse or civil partner died first without using their own allowance, the survivor’s estate can claim up to £5 million at the 100% rate.6HM Revenue & Customs. Shares and Assets Valuation Manual – SVM111010
Take an estate holding £4 million of qualifying unquoted trading company shares. The first £2.5 million gets 100% relief and drops out of the calculation. The remaining £1.5 million gets 50% relief, leaving £750,000 subject to IHT at 40%. Under the old rules, the whole £4 million would have been fully relieved.
AIM Shares Drop to 50% Relief
Shares on the Alternative Investment Market were previously treated as “unquoted” for BPR and received 100% relief. From April 2026, AIM shares and shares on foreign exchanges that are not recognised stock exchanges qualify only for 50% relief, no matter the value.7HM Revenue & Customs. Shares and Assets Valuation Manual – SVM111100 Estates built around AIM portfolios as an IHT planning tool face a materially larger bill.
What Qualifies
BPR is aimed at active trading companies, not passive ones. Section 104 of the Inheritance Tax Act 1984 sets out 100% relief (up to the allowance) for shares in unquoted trading companies and for quoted shares where the deceased held control of the company.8Legislation.gov.uk. Inheritance Tax Act 1984 – Section 104 Companies wholly or mainly holding investments, or dealing in land or buildings, do not qualify.7HM Revenue & Customs. Shares and Assets Valuation Manual – SVM111100
The deceased must also have owned the shares for at least two continuous years before death.9Legislation.gov.uk. Inheritance Tax Act 1984 – Section 106 Shares bought eighteen months before death do not qualify, however active the underlying business. HMRC also examines the balance sheet: significant excess cash or investment assets held alongside a genuine trade can restrict relief to the portion of value attributable to the trading activity.
Shares Gifted Within Seven Years of Death
Shares given away during the deceased’s lifetime can still be caught. If the person survived the gift by seven years, no IHT applies. If they survived at least three years but fewer than seven, taper relief reduces the tax rate on the gift itself. It does not reduce the value of the gift, only the rate:
- Less than 3 years: no reduction, full 40%
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
- More than 7 years: no IHT
Taper relief only bites when the cumulative value of gifts in the seven years before death exceeds the nil rate band available at that time. Gifts that fit inside the £325,000 threshold produce no tax regardless of taper. The relief matters most for large shareholdings transferred close to death.
Reporting Share Values to HMRC
Executors report shares on separate schedules. IHT411 covers shares listed on a recognised stock exchange.10GOV.UK. Inheritance Tax: Listed Stocks and Shares (IHT411) IHT412 covers unlisted shares, private company holdings, AIM shares, and any listed shares where the deceased held a controlling interest.11GOV.UK. Inheritance Tax: Unlisted Stocks and Shares and Control Holdings (IHT412) IHT412 asks for far more detail about the company’s finances, trading activities, and the basis of valuation.
Before completing the schedules, gather share certificates, dividend vouchers, and any shareholder agreements. A professional valuation report is practically essential for private company shares because HMRC’s Shares and Assets Valuation team will compare submitted figures against their own analysis. Inaccurate returns can attract penalties of up to 100% of the tax underpaid, depending on whether the error was careless, deliberate, or concealed.12HM Revenue & Customs. Inheritance Tax Manual – IHTM36103
Paying the Tax When Value Is Tied Up in Shares
IHT is due by the end of the sixth month after the person died. A January death means a 31 July deadline.13GOV.UK. Pay Your Inheritance Tax Bill: Overview Interest runs on anything unpaid after that date.
Meeting that deadline in cash can be hard when most of the estate’s value sits in shares that are slow to sell. Section 227 of the Inheritance Tax Act 1984 lets executors elect to pay IHT on qualifying shares in ten equal yearly installments.14Legislation.gov.uk. Inheritance Tax Act 1984 – Section 227 The first falls due at the normal six-month point; the other nine follow annually.
Installments on shares carry interest on the outstanding balance throughout, unlike some property installments where interest can be waived. Each payment covers both the installment and accrued interest, so spreading the bill costs more overall.15GOV.UK. Pay Your Inheritance Tax Bill: In Yearly Instalments If the shares are sold before the installments are complete, the remaining tax becomes due at once. The cash-flow benefit needs weighing against the interest cost, especially if the estate holds liquid assets that could clear the bill upfront.
Capital Gains Tax When You Later Sell Inherited Shares
Inheriting shares does not itself trigger capital gains tax. Under section 62 of the Taxation of Chargeable Gains Act 1992, the beneficiary is treated as acquiring the shares at their market value on the date of death.16Legislation.gov.uk. Taxation of Chargeable Gains Act 1992 – Section 62 Any gains that built up during the deceased’s lifetime are wiped out by that uplift.
If you sell later for more than the date-of-death value, CGT applies only to the growth since death. If the shares have fallen since then and you sell at a loss, the loss can offset other gains in the same tax year. The reference point is always the date of death, not the date probate is granted or the date shares are transferred into your name.