Finance Act 1973

Section 45.

SCHEDULE 18 Valuation of Certain Investments for Purposes of Estate Duty

Interpretation

1 In this Schedule—

• " the principal section " means section 45 of this Act;

• "principal value " means principal value for the purposes of estate duty and " basic principal value ", in relation to any investments, means the value which, apart from the principal section and section 35 of the [1968 c. 44.] Finance Act 1968, would be the principal value of those investments ;

• " relevant proportion ", in relation to the investments to which a claim relates, or any of them, means the proportion by which the loss on sale is reduced under subsection (4) of the principal section;

• " sale value ", in relation to any qualifying investments, means their value for the purposes of subsection (2)(b) of the principal section; and

• " value on death ", in relation to any qualifying investments, means their value for the purposes of subsection (2)(a) of the principal section.

The appropriate person

2 For the purposes of the principal section and this Schedule—

(a) the executors of the deceased, and

(b) the trustees of a settlement,

shall each be treated as a single and continuing body of persons (distinct from the persons who may from time to time be the executors or trustees).

3 A claim made by the appropriate person under subsection (2) of the principal section shall specify the capacity in which he makes the claim, and any reference in that section to qualifying investments which are sold by him is a reference to investments which, immediately before their sale, were held by him in the capacity in which he makes the claim.

Valuation on sale and purchase

4 In any case where, for the purposes of the principal section, it is necessary to determine the price at which any investments were purchased or sold or the best consideration that could reasonably have been obtained on the sale of any investments, no account shall be taken of any expenses (whether by way of commission, stamp duty or otherwise) which are incidental to the sale or purchase.

5 (1) Subject to sub-paragraph (2) below, for the purposes of the principal section where any investments are sold or purchased by the appropriate person the date on which they are so sold or purchased shall be taken to be the date on which he entered into a contract to sell or purchase the investments.

(2) If the sale or purchase of any investments by the appropriate person results from the exercise (whether by him or by any other person) of an option, then, for the purposes of the principal section, the date on which the investments are sold or purchased shall be taken to be the date on which the option was granted.

Principal value where only part of a fund is dutiable

6 (1) In any case where;—

(a) part only of a holding of qualifying investments is treated for the purposes of estate duty as passing on a death, and

(b) investments comprised in that holding are sold as mentioned in paragraph (c) of subsection (1) of the principal section,

the principal section and this Schedule shall apply as if the entirety of the holding fell within paragraph (a) of subsection (1) of that section and, if a claim is made under that section in respect of the investments referred to in paragraph (b) above, the dutiable fraction of the principal value of the investments to which the claim relates, as determined under that section, shall be the principal value of that part of those investments which is treated as passing on the death.

(2) In sub-paragraph (1) above, " dutiable fraction " means the fraction of which the numerator is the basic principal value of the part of the holding referred to in paragraph (a) of that sub-paragraph and the denominator is the basic principal value of the entirety of that holding.

Exchanges of qualifying investments

7 (1) Subject to sub-paragraph (3) below, if, within the period specified in paragraph (c) of subsection (1) of the principal section, the appropriate person exchanges (with or without any payment by way of equality of exchange) any qualifying investments falling within paragraphs (a) and (b) of that subsection, then, regardless of the nature of the property taken in exchange, if the market value of those investments is at the date of the exchange greater than their value on death, they shall be treated for the purposes of the principal section and this Schedule as having been sold at the date of the exchange for a price equal to that market value.

(2) For the purposes of this paragraph, the market value of any investments at any time means the value which would be the basic principal value of the investments if they formed part of the estate of a person who died at that time.

(3) This paragraph does not apply in any case where the exchange falls within paragraph 10(1) below.

Aggregation of capital receipts with sale price of investments

8 (1) For the purposes of subsection (2)0) of the principal section if—

(a) at any time after the death in question (whether during or after the expiry of the period specified in paragraph (c) of subsection (1) of that section) the appropriate person receives any capital payment or payments which is or are attributable to any qualifying investments falling within paragraphs (a) and (b) of that subsection, and

(b) those investments are sold by him as mentioned in paragraph (c) of that subsection,

the price for which those investments were sold or, as the case may be, the best consideration referred to in subsection (2)(b) of the principal section shall be taken to be increased by an amount equal to the capital payment, or, as the case may be, the aggregate of the capital payments, referred to in paragraph (a) above.

(2) If the appropriate person receives or becomes entitled to receive in respect of any qualifying investments a provisional allotment of shares in or debentures of a company and he disposes of his rights, the amount of the consideration for the disposal shall be treated for the purposes of this paragraph as a capital payment attributable to those investments.

(3) In this paragraph " capital payment", in relation to any investment, does not include the price paid on the sale of the investment but, subject to that, includes any money or money's worth which does not constitute income for the purposes of income tax.

Payment of calls

9 For the purposes of subsection (2)(a) of the principal section if—

(a) at any time after the death in question (whether during or after the expiry of the period specified in paragraph (c) of subsection (1) of that section) the appropriate person pays an amount in pursuance of a call in respect of any qualifying investments falling within paragraphs (a) and (b) of that subsection, and

(b) those investments are sold by him as mentioned in paragraph (c) of that subsection,

the value on death of those investments shall be the aggregate of the amount so paid and the basic principal value of those investments.

Effect of changes in a holding between death and sale

10 (1) This paragraph applies in any case where, within the period specified in paragraph (c) of subsection (1) of the principal section, there occurs in relation to any qualifying investments falling within paragraphs (a) and (b) of that subsection (in this paragraph referred to as "the original holding") a transaction to which paragraph 4 of Schedule 7 to the [1965 c. 25.] Finance Act 1965 applies, that is to say.—

(a) a reorganisation, within the meaning of that paragraph, or reduction of the share capital of a company ; or

(b) the conversion of securities, within the meaning of paragraph 5 of that Schedule ; or

(c) the issue by a company of shares or debentures in exchange for shares in or debentures of another company in such circumstances that paragraph 6 of that Schedule applies ; or

(d) the issue by a company of shares or debentures under such an arrangement as is referred to in paragraph 7 of that Schedule;

or any transaction relating to a unit trust scheme which corresponds to any of the transactions referred to in paragraphs (a) to (d) above and to which paragraph 4 of that Schedule applies by virtue of section 45(8) of the Finance Act 1965.

(2) Subject to sub-paragraph (3) below, where this paragraph applies the holding of investments which, as a result of the transaction, constitutes the new holding, within the meaning of paragraph 4 of the said Schedule 7, shall be treated for the purposes of the principal section and this Schedule as being the same as the original holding; and references in the following provisions of this paragraph to the new holding shall be construed accordingly.

(3) If, in a case where this paragraph applies, the appropriate person gives, or becomes liable to give, as part of or in connection with the transaction concerned, any consideration for the new holding or any part of it, then, for the purposes of sub-paragraph (5) below, the value on death of the new holding shall be treated as the aggregate of—

(a) the value on death of the original holding, and

(b) an amount equal to that consideration,

and in any other case the value on death of the new holding shall be taken to be the same as the value on death of the original holding.

(4) For the purposes of sub-paragraph (3) above, there shall not be treated as consideration given for the new holding or any part of it—

(a) any surrender, cancellation or other alteration of any of the investments comprised in the original holding or of the rights attached thereto, or

(b) any consideration consisting of any application, in paying up the new holding or any part of it, of assets of the company concerned or of any dividend or other distribution declared out of those assets but not made.

(5) If, in a case where this paragraph applies, the appropriate person sells, within the period referred to in sub-paragraph (1) above, any investments comprised in the new holding, the value on death of those investments shall be determined by the formula—

where—

• Vs is the sale value of the investments,

• Vr is the market value at the time of the sale of any investments remaining in the new holding after the sale,

• H is the value on death of the new holding, and

• S is the value on death of any investments which were originally comprised in the new holding but have been sold on a previous occasion or occasions.

(6) Sub-paragraph (2) of paragraph 7 above shall apply for the purposes of sub-paragraph (5) above as it applies for the purposes of that paragraph.

Effect of purchase, etc. of investments of the same description

11 (1) If, at any time within the period specified in paragraph (c) of subsection (1) of the principal section, the appropriate person sells any investments which form part of a holding of investments which are all of the same description and consist of—

(a) investments falling within paragraphs (a) and (b) of that subsection, and

(b) investments acquired by him, by purchase or otherwise, after the death concerned but not in circumstances in which paragraph 10 above applies,

the investments so sold shall be apportioned for the purposes of the principal section and this Schedule between those falling within paragraph (a) and those falling within paragraph (b) above in the same proportion as, immediately before the sale, the investments comprised in the holding and falling within paragraph (a) above bore to the investments so comprised and falling within paragraph (b) above.

(2) For the purposes of this paragraph, if the appropriate person holds investments of any description in the capacity of an executor or trustee, the investments shall not be treated as forming part of the same holding as investments which, though of the same description, are held by him otherwise than in that capacity.

Attribution of principal values to specific investments

12 (1) This paragraph shall have effect in determining the principal value (and, accordingly, the market value for the purposes of capital gains tax under section 26 of the [1965 c. 25.] Finance Act 1965) of any investment (in this paragraph referred to as a " specific investment ") which is included among the investments to which a claim relates.

(2) Subject to the following provisions of this paragraph, the principal value of a specific investment shall be its sale value.

(3) Subject to the following provisions of this paragraph, in a case where the calculation of the loss on sale of the investments to which a claim relates is affected by subsection (4) of the principal section—

(a) if the value on death of a specific investment exceeds its sale price, the principal value of that investment shall be the aggregate of its sale value and an amount equal to the relevant proportion of the difference between its sale price and its value on death ; and

(b) if the sale price of a specific investment exceeds its value on death, the principal value of the investment shall be its sale value less an amount equal to the relevant proportion of the difference between its value on death and its sale price.

(4) For the purposes of sub-paragraphs (2) and (3) above, the sale value of a specific investment in respect of which an amount has been paid in pursuance of a call, as mentioned in paragraph 9 above, shall be reduced by the amount so paid in respect of that investment.

(5) In a case where, by virtue of sub-paragraph (3) of paragraph 10 above, the value on death of the new holding, within the meaning of that paragraph, includes an amount equal to the consideration referred to in that sub-paragraph, the sale value of any specific investment comprised in the new holding shall be reduced, for the purposes of sub-paragraphs (2) and (3) above, by an amount which bears to that consideration the like proportion as the value on death of the specific investment sold bears to the value on death of the whole of the new holding.

(6) In sub-paragraph (3) above " sale price", in relation to a specific investment, means the price for which the investment was sold by the appropriate person or, if it is greater, the best consideration which could reasonably have been obtained for the specific investment at the time of the sale ; and paragraph 8 above shall apply for the purposes of this sub-paragraph as it applies for the purposes of subsection (2)(b) of the principal section.

Loss on sale not to exceed principal value

13 In any case where, apart from this paragraph, the loss on sale of any investments—

(a) in respect of which an amount has been paid in pursuance of a call, as mentioned in paragraph 9 above, or

(b) which are sold as mentioned in paragraph 10(5) above,

would exceed their basic principal value, their sale value shall be treated for the purposes of the principal section and paragraph 12 above as being of such an amount that the loss on sale would be equal to their basic principal value.