Value of Shareholdings in Inheritance: How to Avoid Costly Mistakes?

Imagine yourself in Antibes, owner of a small family perfumery business passed down for two generations. Your father has just died, and you must declare the inheritance. Among the assets to be valued are the shareholdings (ownership titles of a company) of this unlisted company. How do you determine their real value? Should you rely solely on the company's asset value (the company's property and receivables)? This is the question thousands of heirs in France ask themselves every day.

The answer is not simple, because an undervaluation can lead to tax reassessments, while an overvaluation unnecessarily increases the inheritance tax (taxes due on the transfer). But what exactly does the law require? How do the courts interpret this obligation?

A decision by the Court of Cassation (the highest French judicial court) of 28 January 1992 provides essential clarifications. It reminds us that the valuation must reflect economic reality, not just accounting figures. Let's see how this case law can help you avoid costly mistakes.

The Facts: A Story That Happens Every Day

Mr. Martin, owner of industrial land in the Grasse region, dies leaving several heirs, including his two children. Among his assets are shareholdings in an unlisted family company, notably holding this land. The heirs declare the inheritance using a value based mainly, if not exclusively, on the company's asset value, estimated in a summary manner.

The tax authorities challenge this valuation. They consider the declared value to be undervalued because the land, although located in an area whose classification had been contested by the deceased (a procedure rejected by a judgment in 1986), has potential. The disagreement concerns several thousand francs in additional inheritance tax. The heirs merely argue before the court that they paid in error based on their initial declaration, without providing concrete evidence justifying the amount used.

The court, then the court of appeal, rule in favour of the tax authorities. The heirs appeal to the Court of Cassation, arguing that the valuation should be limited to the company's assets. The judicial trajectory shows a classic twist: a hasty estimate in the declaration, a tax audit, a poorly substantiated defence, and escalation to the highest court. A situation I have seen repeated, particularly with owners of property companies on the Côte d'Azur.

The Court's Reasoning — Analysed

The Court of Cassation dismisses the heirs' appeal. Its reasoning is based on a fundamental principle: for the collection of inheritance tax, the value of unlisted shareholdings must be assessed taking into account all elements that together allow for a valuation as close as possible to that which would have resulted from the interplay of supply and demand in a real market on the date of death.

In other words, the judges remind us that the company's asset value is only one of these elements. It is not enough to look at the accounting balance sheet. One must consider the yield value (future profits), the clientele, the business goodwill, the geographical location, development prospects, and even, as in this case, the buildability of land held by the company. Article 750 ter of the French General Tax Code (which governs the valuation of assets for inheritance tax) is interpreted in this sense.

The Court thus confirms consistent case law: the valuation must be economic, not purely accounting. It particularly notes that the heirs, who contested the taxation, had not fulfilled their burden of proof (obligation to prove their claims). They merely said "we paid in error," without justifying the declared amount. In short, when challenging a valuation against the tax authorities, one must provide solid evidence. Here, the lack of justification was fatal.

This is not a reversal, but an important confirmation. The heirs' arguments (relying solely on company assets) are rejected as too restrictive. The tax authorities were right to demand a comprehensive approach. The decision emphasises that even land in a contested area can have a value higher than its mere accounting value, especially if it is buildable. A lesson for all those who own companies holding property in Grasse or Antibes, where land value is often underestimated in balance sheets.

What This Means for You — Practically

If you are an heir to an unlisted company, you can no longer rely on an approximate estimate based on the balance sheet. You must conduct an in-depth valuation, considering all assets, including those not necessarily appearing in the accounts. For example, for an SARL (limited liability company) holding commercial premises in Grasse, you will need to assess: the market value (resale value) of the premises, the leasehold right, the clientele, and projected profits.

Concretely, take a typical case: a family company in Antibes valued at €200,000 in company assets. If the premises it owns are actually worth €300,000 on the market and generate €20,000 in annual rents, the value of the shareholdings could be revalued to €350,000 or more. The inheritance tax (approximately 20-40% depending on the relationship) would thus increase from €40,000 to €70,000 or more. A significant difference!

If you are in this situation, you must: 1) Consult an accountant or valuer for a realistic estimate before the declaration. 2) Prepare a supporting file (accounts, expert reports, market comparables). 3) Declare within 6 months of death (mandatory deadline). For property professionals, this decision reinforces the need to advise clients on the valuation of companies holding assets, especially in high-pressure areas like the Côte d'Azur.

Be careful, however: an overvaluation can also be detrimental by increasing the tax burden. The goal is accuracy. undefined, I have encountered cases where heirs had undervalued by 50% the value of an SCI (civil property company) in Grasse, leading to a tax reassessment of several tens of thousands of euros after an audit.

Four Tips to Avoid This Type of Dispute

• Have the shareholdings appraised by an independent professional before the inheritance declaration, especially if the company holds property. An accountant or a contributions auditor can provide a detailed report.
• Keep all supporting documents: accounting balance sheets, lease agreements, property expert reports, market studies. These documents will be useful in case of a tax audit.
• Do not rely solely on the accounting value of the company's assets. Include intangible elements (business goodwill, reputation) and future yield value.
• Consult a lawyer specialising in inheritance and property law as soon as possible after a death, to anticipate valuations and avoid declaration errors.

In-Depth Analysis: Related Case Law and Developments

This decision is part of a consistent line of case law. For example, a Court of Cassation ruling of 12 July 1989 (No. 87-15.302) had already emphasised the need for a comprehensive economic valuation, rejecting a purely mathematical method. Similarly, in the 2000s, the courts confirmed this approach for companies holding assets in flood-prone areas or with potential, as sometimes found in the Grasse hinterland.

The trend is clear: the courts require a realistic and multi-factorial approach. What does this mean for the future? With the increasing complexity of estates (holding companies, digital assets), this case law remains more relevant than ever. Tax audits are strengthening, particularly on significant inheritances. For property owners in the region, this implies increased vigilance during transfers, especially for companies holding assets with high potential capital gains, such as buildable land near Antibes.

Summary and Next Steps

Here is a checklist of what to do if you inherit unlisted shareholdings:

1. Precisely identify the assets held by the company (property, business goodwill, etc.).
2. Have an independent expert valuation of the shareholdings conducted, incorporating all economic elements.
3. Declare the value thus determined in the inheritance declaration, with supporting documents.
4. Consult a lawyer if in doubt about the valuation or in anticipation of a tax audit.

Before this decision, some heirs thought they could rely solely on company assets. Afterward, it is clear that a comprehensive approach is mandatory, under penalty of reassessment. How to react if the tax authorities challenge your valuation? Immediately provide your supporting documents and, if necessary, seek professional assistance to negotiate or contest.

Do you find yourself in a similar situation? An initial 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →