What happens to shares when a shareholder dies

Q: How are the shares taxed on death and afterwards?

Inheritance Tax. The shares form part of the estate at their value on the date of death. Shares in a private company are reported on schedule IHT412 with form IHT400 where a full account is needed, and HMRC's Shares and Assets Valuation team may check the value. Many trading company shares qualify for Business Relief, which should be considered before any valuation is agreed. Capital gains tax. Under section 62(1) of the Taxation of Chargeable Gains Act 1992 the deceased is not treated as disposing of the shares on death, and the personal representatives are treated as acquiring them at market value at the date of death. When the shares pass to a legatee, section 62(4) provides that no gain accrues to the personal representatives and the legatee is treated as having acquired them when the personal representatives did. If the personal representatives sell instead, any gain since death is theirs. Income tax. Dividends paid before death go on the deceased's final return; see tax returns for someone who has died. Dividends declared after death are paid to the personal representatives under article 31(2)(c) and are dealt with in the estate's own tax position, not on the deceased's final return.

Q: How does this work in a typical case?

Illustration only. Margaret owned 60 of the 100 shares in a family company; her son Ian owns the other 40 and is the sole director. Her will leaves her shares to her daughter Ruth. Margaret's executor obtains probate and sends a copy to the company with the share certificate. The articles contain no pre emption on death, so Ian, as director, accepts the evidence. The executor signs a stock transfer form to Ruth for nil consideration, which is exempt from Stamp Duty. Ian approves the transfer, enters Ruth in the register of members, cancels Margaret's certificate and issues a new one to Ruth, and files the PSC changes. For capital gains tax Ruth's base cost is the probate value of the 60 shares.

When a shareholder dies, their shares pass by operation of law to their personal representatives (the executors under a will, or administrators on an intestacy), not straight to the beneficiaries. Once the personal representatives prove their entitlement, usually with the grant of probate or letters of administration, they can either be registered as holders themselves or sign a transfer to the beneficiary, who is then entered in the register of members.

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What happens to the shares on the day the shareholder dies?

Nothing changes on the register immediately. The deceased remains the registered holder, but the right to the shares has been “transmitted” to the personal representatives. Section 770(2) of the Companies Act 2006 preserves the company’s power to register a person to whom shares have been transmitted by operation of law, and section 771, which sets the two month deadline for registering transfers, expressly does not apply to transmission.

Most private companies use the Model Articles for private companies limited by shares, or articles based on them. Article 27 calls the person entitled a “transmittee” and says:

the company may only recognise the transmittee as having any title to the shares (article 27(1));
a transmittee who produces the evidence of entitlement the directors may properly require can choose either to become the holder or to have the shares transferred to someone else, and meanwhile has the same rights as the holder had (article 27(2));
but a transmittee cannot attend or vote at a general meeting, or agree to a written resolution, in respect of those shares unless they become the holder (article 27(3)).

Dividends do not stop. Under article 31(2)(c), where the holder is no longer entitled by reason of death, the “distribution recipient” is the transmittee, so dividends are paid to the personal representatives for the estate. Under article 29, a notice given to the deceased before the transmittee was registered binds the transmittee.

What evidence can the company ask for?

Section 774 requires a company to accept, as sufficient evidence, any document that is by law sufficient evidence of a grant of probate, letters of administration or, in Scotland, confirmation as executor. In practice the company secretary or directors will ask for a copy of the grant and the death certificate, and the share certificate if the personal representatives can find it. If it cannot be found, companies commonly ask for an indemnity before issuing a replacement.

The articles may allow the directors to accept other evidence in a small estate, but they are not obliged to, and a company that registers the wrong person risks a claim from the true owner.

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Should the personal representatives register themselves or transfer to the beneficiary?

There are two routes under article 28.

Registration as holders. The personal representatives notify the company in writing that they wish to become the holders (article 28(1)). Once registered, they can vote, which can be important if the deceased held a controlling stake and decisions are needed while the estate is administered.
Transfer to the beneficiary or a buyer. The personal representatives sign an instrument of transfer (article 28(2)). Section 773 confirms that a personal representative can execute a transfer even though not a member, and it is as effective as if they had been a member. Under article 28(3) the transfer is treated as made by the deceased “as if the event which gave rise to the transmission had not occurred”.

That last point is important. Because the transfer is treated as made by the deceased, any restrictions in the articles on transfers apply to it. Under the Model Articles the directors keep their power to refuse to register a transfer (article 26(5)), so a beneficiary is not guaranteed a place on the register. Bespoke articles often go further, with a “deemed transfer notice” on death requiring the shares to be offered to the surviving members at fair value, while shareholders’ agreements may contain cross options funded by life insurance. Anyone acting for the estate should read the articles and any shareholders’ agreement before promising a beneficiary the shares.

A transfer to a beneficiary under the will needs a stock transfer form, but HMRC’s guidance lists shares someone leaves you in their will as exempt from Stamp Duty with nothing to send to HMRC. A sale by the personal representatives for more than £1,000 is a normal dutiable transfer; see transferring shares.

What if the deceased was the only director and shareholder?

A one person company can be left with nobody able to act. Article 17(2) of the Model Articles deals with this: where, as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to die may appoint a director by notice in writing. That director can then register the transmission, pay bills and keep the company’s filings up to date. Companies House must be told that the deceased has ceased to be a director, and of any new director, within 14 days (section 167G); see appointing a director. The change in people with significant control must also be notified; see persons with significant control.

How are the shares taxed on death and afterwards?

Inheritance Tax. The shares form part of the estate at their value on the date of death. Shares in a private company are reported on schedule IHT412 with form IHT400 where a full account is needed, and HMRC’s Shares and Assets Valuation team may check the value. Many trading company shares qualify for Business Relief, which should be considered before any valuation is agreed.

Capital gains tax. Under section 62(1) of the Taxation of Chargeable Gains Act 1992 the deceased is not treated as disposing of the shares on death, and the personal representatives are treated as acquiring them at market value at the date of death. When the shares pass to a legatee, section 62(4) provides that no gain accrues to the personal representatives and the legatee is treated as having acquired them when the personal representatives did. If the personal representatives sell instead, any gain since death is theirs.

Income tax. Dividends paid before death go on the deceased’s final return; see tax returns for someone who has died. Dividends declared after death are paid to the personal representatives under article 31(2)(c) and are dealt with in the estate’s own tax position, not on the deceased’s final return.

How does this work in a typical case?

Illustration only. Margaret owned 60 of the 100 shares in a family company; her son Ian owns the other 40 and is the sole director. Her will leaves her shares to her daughter Ruth. Margaret’s executor obtains probate and sends a copy to the company with the share certificate. The articles contain no pre emption on death, so Ian, as director, accepts the evidence. The executor signs a stock transfer form to Ruth for nil consideration, which is exempt from Stamp Duty. Ian approves the transfer, enters Ruth in the register of members, cancels Margaret’s certificate and issues a new one to Ruth, and files the PSC changes. For capital gains tax Ruth’s base cost is the probate value of the 60 shares.

What mistakes come up?

Registering a beneficiary directly from the will without a transfer signed by the personal representatives.
Letting the personal representatives vote before they are registered, contrary to article 27(3).
Overlooking a compulsory transfer clause on death in bespoke articles, so the shares are offered to the wrong people or at the wrong price.
Leaving a sole member company without a director for months because nobody used article 17(2).
Updating the register but forgetting the PSC notification and the confirmation statement.
Agreeing a low probate value for Inheritance Tax without considering that it also sets the beneficiary’s capital gains tax base cost.

A transmittee who is kept off the register unfairly is not without remedy: section 994(2) lets a person to whom shares have been transmitted by operation of law petition for unfair prejudice in the same way as a member.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.