Business valuation for probate: valuing a company for inheritance tax

When someone dies owning a business or shares in a private company, the personal representatives have to put a figure on it. That figure goes on the inheritance tax return, it is the value HMRC works from, and the executors carry personal responsibility for it. This guide sets out the test HMRC applies, the forms involved, how minority holdings are discounted, and where probate valuations most often go wrong.

The short answer

A probate valuation must state the open market value of the interest at the date of death — the price a willing buyer would have paid a willing seller, with neither compelled to act. For a trading company that means a properly normalised earnings valuation, cross-checked against net assets and comparable transactions, and then adjusted for the specific holding: a 15% stake is not 15% of the company's value. The result is reported on IHT400, with unlisted shares detailed on IHT412 and business or partnership interests on IHT413.

The statutory test

Section 160 of the Inheritance Tax Act 1984 defines value as the price the property might reasonably be expected to fetch if sold on the open market at that time, with no reduction assumed for putting the whole estate on the market at once. Two consequences follow that catch people out. First, the hypothetical buyer is assumed to have access to all the information a prudent purchaser would obtain — so poor internal records do not depress the value. Second, restrictions in the articles on transferring shares are taken into account in pricing the holding, but they do not make the shares unsaleable for valuation purposes.

What actually drives the figure

Maintainable earnings, normalised. Owner remuneration above or below market rate, one-off items, related-party charges and personal costs run through the company all have to be stripped out before any multiple is applied. In an owner-managed business the deceased was frequently underpaid or overpaid relative to a market-rate replacement, and correcting that moves the value materially.

Owner-dependence at the date of death. This is the point HMRC and executors most often disagree on. If the deceased was the business — the relationships, the technical skill, the licence holder — a buyer on the open market would have paid substantially less than the historic accounts suggest. That argument is legitimate and frequently worth a large reduction, but it has to be evidenced, not asserted.

Surplus assets. Cash well beyond working capital needs, investment property and loans to directors are valued separately from the trading business. They also matter for business relief, because excepted assets are excluded from the relief even when the company otherwise qualifies.

The size of the holding. Control, influence and marketability set the discount. See below.

Discounts for minority holdings

A pro-rata slice of the whole company is almost never the right answer for a minority. The accepted approach starts from the value of the entirety and applies a discount reflecting what the holding can actually do: block a special resolution, appoint a director, force a dividend, or nothing at all. As a broad guide for UK private companies:

Under 10% — typically 60-75% discount; a pure income interest with no influence.
10-25% — typically 50-65%; can requisition a meeting, little else.
25-49% — typically 35-50%; a blocking stake on special resolutions carries real negotiating weight.
50% — typically 20-30%; deadlock value.
Over 50% — small or no discount; over 75% generally none.

These are starting points, not answers. The articles, any shareholders' agreement, dividend history and the identity of the other shareholders can all move the figure well outside these ranges. A family company where the remaining shares sit with the deceased's spouse and children behaves very differently from one where they sit with an unrelated majority owner.

Business relief does not remove the need for a valuation

Business relief can reduce or eliminate the IHT charge on qualifying unlisted shares and trading businesses, but the value must still be reported and agreed. Relief is denied on excepted assets, so a company sitting on a large investment portfolio or surplus cash pile will not shelter the whole value. From April 2026 the 100% rate is capped at a £1 million allowance per estate, with 50% relief above it — which makes an accurate reported value directly tax-relevant for any substantial holding, where before it was often academic.

Where probate valuations go wrong

Using net book value. The balance sheet is a historic cost record, not a value. Freehold property held at 1994 cost and fully depreciated plant both mislead in opposite directions.

Applying a sector multiple to reported profit. Reported profit in an owner-managed company is a tax outcome, not a measure of earning power.

Claiming a discount with no reasoning. A flat “we applied 70%” invites a challenge from Shares and Assets Valuation. The discount needs to be derived from the rights the holding actually carries.

Undervaluing to reduce IHT. Beyond the penalty risk, a low probate value becomes the beneficiaries' capital gains base cost. If the business is sold two years later, the tax saved on IHT can reappear as a larger CGT bill.

What we need to produce one

One to three years of statutory accounts, and management figures to the date of death if available.
The company's articles and any shareholders' agreement.
The shareholding structure — who holds what, and their relationship to the deceased.
A short note on the deceased's role in the business day to day.

Common questions

Do I need a formal business valuation for probate?

If the deceased held shares in a private company or owned a trading business, yes in almost every case. The personal representatives must report the open market value at the date of death on form IHT400 (with IHT412 for unlisted shares), and they are personally responsible for that figure being right. An estimate written on the back of the accounts is not a defensible basis, and HMRC's Shares and Assets Valuation team routinely challenges unsupported figures.

What date is used for a probate valuation?

The date of death. The valuation must reflect what the interest would have fetched on the open market on that day, using information reasonably available then — not what happened to the business afterwards. Later events can only be used as evidence of what was already knowable at the date of death.

Can a minority shareholding be discounted for probate?

Yes, and it usually should be. A holding that cannot control the company is worth less per share than a controlling stake. Typical discounts for a small minority in a UK private company run to 50-75% off a pro-rata share of the whole, narrowing as the holding approaches 50%. The discount must be reasoned from the articles, any shareholders' agreement and the actual influence the holding carries — HMRC will not accept a rule-of-thumb percentage on its own.

Does business relief mean the valuation doesn't matter?

No. Business relief can reduce the inheritance tax charge on qualifying trading businesses and unlisted shares, but the value still has to be reported and agreed. Relief may be partial where the company holds excepted assets such as surplus cash or investment property, and from April 2026 the 100% rate applies only up to a £1 million allowance per estate, with 50% relief above it. That makes the reported value directly tax-relevant again for larger holdings.

How long does a probate business valuation take?

Our written valuation is delivered within 72 hours of receiving the accounts, for a fixed fee, typically £495. HMRC's own review of a submitted share value is a separate process and commonly takes several weeks to a few months if they raise queries.

The Business Valuers provides independent, fixed-fee valuations for UK SMEs, including probate and inheritance tax valuations. This article is general guidance and not tax or legal advice for any particular estate.