I am working on an estate where the deceased sold his shares for approximately £2,500,000 shortly before he died. The consideration is being paid out in multiple instalments across 7 years. The amount of the consideration is fixed for each payment, but the timing of the payments can be adjusted by the buyer if they have insufficient cash flow.
The deceased was not continuing to work in the company following the sale of the shares.
For an IHT perspective, are there any discounts that can be applied to the total value of the consideration, given it is being paid out across 7 years?
Further, can any discount be applied because of the expected CGT liability on each payment of consideration?
Yes, I would take the view that the right to the payments is a chose in action which should be valued at its net present value. That means it can be discounted for the time, the risk of fluctuation and the credit risk that the debtor might not pay at all.
The net present value of a payment due in 7 years should be far less than the sum payable. Take a look at “discounted cash flow” calculations.
I don’t think you can discount for tax payable on the payments.
The process is aimed at identifying Open Market Value. That is the price that a hypothetical willing buyer would pay to a hypothetical willing seller of the chose in action. That price ignores the tax payable by the seller because that tax is payable by the buyer out of the amount receivable.
The position might be different where the tax or other impost was payable by the seller, particularly if it were a withholding tax.
That poses the question in the UK for sure (and in other countries in an international context) of whether OMV is VAT-inclusive where the supply is positive-rated on a mandatory basis. Surely it must be so treated.
Complications present themselves flowing from the hypothetical character of the parties. I suggest that it would not be right to assume that such a seller would opt to tax or that the buyer was a recipient of a supply that could claim a refund of the tax otherwise than as input tax as a registered person.
The latter is likely to be a rare bird indeed and may even be a unicorn (I can’t readily envisage a relevant OMV situation). Not so the former. Overage payments on the supply of a new commercial building are standard-rated: VATLP02959 (most unlikely that the supplier will not be a registered person!). I suggest that even the hypothetical purchaser of such a building would be assumed to have to pay a price for overages equal to OMV inclusive of VAT at the standard rate to a hypothetical registered seller. A sale of bare land with overages will be usually, and so also hypothetically, an exempt supply, often by a non-registered person.
The only real world component of the hypothetical farrago is the actual subject-matter of the transaction and where relevant the actual terms of the sale if that is the type of transaction in question. The OMV formula cannot impute an overages term to a sale or ignore it if it is a term, save that (as with lotting) the formula assumes that the actual sale will be made on the most favourable terms—and overages may be such in context.
Further, can any discount be applied because of the expected CGT liability on each payment of consideration?
I don’t know the answer to this (sorry Jack) as it will depend on the facts.
Often, the CGT liability would have arisen when the shares were sold. This would seem to be the case, taking the brief facts at face value, as it seems to be ascertainable deferred consideration and the OP has not mentioned loan notes. If this had not yet been paid by the date of death, presumably it would be a liability of the estate and so reduce the IHT due.
Any CGT might not have been paid because it was not due yet (e.g. death before the relevant 31 January) or because it was to be paid in instalments (s280 TCGA). So that the begs the question of whether the expected CGT liability on each payment means:
the CGT payable in instalments, or
the CGT that the PRs (or beneficiaries who receive the chose in action) will have to pay. This would not reduce the value of the estate
I used “often” as there is also a question as to the exact form of the deferred consideration. Sometimes this will be structured as loan notes so that the paper-for-paper CGT rules defer the CGT liability until the disposal of the loan notes. That CGT would not reduce the value of the estate but may change the CGT that the PRs / beneficiaries have to pay when the loan notes are redeemed.
The OP was about IHT and valuation. The problem with this is that the value of a future receivable must be calculated at the date of death. There is no wait and see or facility to substitute actual amounts received.
Because of discounting there is the comfort that probably less will be taxed up front than actually received although those receipts will be affected by inflation and the opportunity cost of investing a net of tax immediate receipt.
This approach at least allows the estate to be administered more promptly and with greater certainty—at least as regards its tax burden—but see Key v Key [2026] EWHC 2098 (Ch) for an administration excessively protracted by an obstructive executor at great cost (Kerching Kerching!) and ably accelerated by Master Clark ordering a sale of the main asset to the other executor.
Loony Litigants, how we love them! My favourite bookkeeping entry was always Dr.Cash Cr. HMRC and Single Malt.
I was alluding to the potential for a CGT liability already reducing the value of the estate. And also to the complexity of corporate transactions, and the CGT uplift on death, making things more interesting.
The eventual CGT liability on the future receipts will reduce the prospective IHT estate on the future death of the person upon whom the chose in action devolves under the deceased’s Will or intestacy but it has absolutely no effect on the estate of the deceased because he or she is dead. Expired. Gone to meet their Maker.
I would be interested in whether any forum members have ever experienced the possibility of PRs assigning such a receivable for immediate value i.e. factoring a once-off non-trade receivable. Such a chose in action is not an overly attractive asset to inherit.
For CGT its base cost s.274 TCGA will apply the IHT value. See also SVM107160 and VOA Capital Gains Manual Practice Note 3