What should I do with my father’s shares?

I am a senior manager in the City and have worked in finance for two decades. My father sadly passed away this year. We never worked together but I very much followed in his footsteps. He was an avid investor and he left me shares in a variety of companies. Some are public and some private. Are any pitfalls to avoid in inheriting these? What should I do with them?

James Broadhurst, partner at Charles Russell Speechlys, says there are differences when inheriting shares compared with other types of property. 

Shareholder rights depend on the terms on which the shares were issued. For a UK public company, the “articles of association” will state whether the shares are freely transferable. Usually, shares in private companies are not. In reality, they are illiquid.

Before you decide to sell or hold, however, the executor of your father’s will needs to transfer the shares into your name. How shares are transferred when a shareholder dies depends on how the original shares were issued.

To sell public shares you will simply need to produce the right paperwork, which your father’s executor should have. This person can either have the shares put into their name and then transferred to you, or have the shares transferred to you directly.

Holding shares in private companies generally involves remaining a shareholder for the long haul. In private companies there is no ready market for the shares, so a shareholder wishing to sell needs to find another willing to buy (with the consent of the other shareholders).

If your father had significant shareholdings, he may have had additional rights, for example the right to appoint a director to the board or the right to veto certain decisions. He might have been given a special deal relating to how, and when, he could exit. These special rights are usually contained in a separate agreement known as a shareholders’ agreement.

Look in your father’s papers for the share certificates for the companies. If your father didn’t hold these, look into the “articles of association”, which are freely available on the Companies House website as they will tell you how shares in that company can be transferred. See if your father held a shareholders’ agreement. With all this paperwork in place you will be able to determine how and when you could exit.

The main tax consideration is inheritance tax (IHT). For individuals domiciled in the UK, assets anywhere in the world are subject to IHT on death at a rate of 40 per cent, subject to a small nil rate band of £325,000 per person (which, if certain conditions are met, can rise to £500,000 per person). This would include shares in non-UK companies.

The shares in the public companies will be subject to IHT on your father’s death, with the tax due within six months following the end of the month in which he died. If your father held the shares in the private companies for a period of two years, then a relief from IHT (known as “business property relief”) will probably apply to exempt the shares.

If you decide to sell the shares they could be subject to capital gains tax.

You should also consider income tax. Some companies choose to declare dividends to shareholders. If they do, the dividends are subject to income tax. The rate of dividend tax is lower than normal rates of income tax, with basic-rate taxpayers paying 8.75 per cent, higher-rate taxpayers 33.75 per cent, and additional-rate taxpayers paying 39.35 per cent.

If any of your father’s shares were held in the Aim market they will be tax free when you sell them if he held them for at least two years before he died.

My ex disputes our house valuation. What can I do?

My boyfriend and I have split up. We equally own our house and he wants to stay in the house and buy me out. I thought, as everything has been equal, this would be relatively straightforward, however he is being awkward about how much he owes me. Even with a recent house valuation, he disputes the final amount. I don’t want to be short-changed, what can I do?

Judith Murray, barrister at law firm 4PB, says this is a common issue as, although you are cohabitees, there is no legal “family” relationship between you and your boyfriend. Common law wife is not a legal term in any country across the UK, it simply means a couple is cohabiting, and so you own the property in the same way as co-owning a property with any other person.

You say you own the property equally. Did you specifically agree this and is it recorded in writing? This will be important. Do you hold the property as tenants in common or joint tenants? This will be clear from the Office Copy Entry from the Land Registry. As tenants in common you would have specified your shares (50/50 presumably), whereas owning as joint tenants means that you both own the whole of the property with the starting point being the presumption of equal ownership. If your boyfriend wants to claim that he is entitled to more than half he will need to prove why by for example showing a greater financial contribution.

Is it agreed that you both contributed equally to the equity in the property and are therefore agreed that you are entitled to half of it? Is it the valuation he is disputing?

Ultimately, you can apply to the court for a declaration of your interest and for a sale (Trusts of Land and Appointment of Trustees Act or TOLATA application). This would put pressure on him to agree, rather than incur legal fees, but it is an expensive way to solve the dispute. You would certainly want to make him a formal “without prejudice save as to costs” offer before doing so. This would mean that in the event that the court decides that he should pay what you agreed to accept or that the property should be sold, you could apply for him to pay your costs of the legal action.  

The court can order that the property is sold and the proceeds of sale are divided between you as determined by the court. It could also be ordered that if he does not pay you the amount awarded then the property is sold.

However, this is all more complicated than you would want. If the valuation is the issue you could either obtain a number of market appraisals (for the actual sale price and not an asking price) and take an average or you could pay a chartered surveyor to complete a ‘Red Book’ valuation. The latter is obviously more expensive but usually provides a finite figure that you are both bound by.

To take a practical approach, before applying to court you might try engaging the services of a mediator to see if you can reach an agreement with the assistance of a third party. This would be far cheaper but if he continues to refuse to agree you are no further forward. It might, however, flush out what the actual problem is for him in simply paying you half. Ultimately, if you cannot agree you will need to apply to the court to obtain an order for the sale of the property.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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