Section A: Objective Test

David owned 6,000 shares (a 60% holding) in a private limited company. The shares were valued at £50 each for a 60% holding, £30 each for a 45% holding, and £20 each for a 15% holding. David gifted 1,500 shares to his daughter.

What is the transfer of value for Inheritance Tax (IHT) purposes using the diminution in value principle?

For IHT, a gift is valued based on the diminution in value of the donor's estate. Value of estate before gift: 6,000 shares (60% holding) x £50 = £300,000. Value of estate after gift: 4,500 shares (45% holding) x £30 = £135,000. Transfer of value = £300,000 - £135,000 = £165,000. Note that the donor lost control (dropped from 60% to 45%), which significantly reduces the per-share value of the retained holding, making the transfer of value much higher than the standalone value of the gifted shares.