Valuation discount applied to unlisted shares / private companies for IHT

dominoman

Bit of a complicated one, so please bear with me...

I am trying to work out the right valuation discount to apply for private company shares in my late father's estate. The discount to cater for the fact that these are small holdings (<5% of the company) and the companies are loss making, will need more capital, and shares are not tradeable in any way.

I have consulted several people who are knowledgeable in such matters, and there is unfortunately little consensus. It seems to be a dark art.

I have been using a figure of around around 80% discount so far, but perhaps that is too low?

Take this example, for a small loss-making manufacturing company my late father has 5% ownership of:

Sept 2018 funding round Price per share of £400, discounted 80% = £80
Jan 2019 HMRC valuation for EMI Employee options: £10
April 2019 funding round: Price per share of £444, discounted 80% = £89
April 2020 HMRC valuation for EMI Employee options: £25

If EMI options are being priced at £25, is that the price that is reasonable to use? Is the valuation for EMI options generally the same as the valuation discount applied for IHT?

Thanks for any help!

Dox

Are the shares actually worth anything? Two funding rounds in as many years suggests the company owners are better at raising money than actually making it. The EMI prices look hopelessly optimistic in the light of what your post says. 

dominoman

Well yes, that's my concern too.  But I'm wondering how HMRC treats them for IHT purposes.  I don't think we could get away with valuing them at nothing, so generally I have been using the last raise price (assuming it is in the past 6 months or so) and discounting by about 80%.
The EMI prices discount it by something like 95%, so perhaps that is what we should be using?

Dox

Have you spoken to HMRC (or tried to!) - their helpline deals with just this sort of query: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/shares-and-assets-valuation-enquiries

dominoman

Thanks Dox.  I wasn't aware of that line.  Will give them a call tomorrow and see what they advise.  Thanks again