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Tax tribunal determines the ‘market value’ of unquoted shares

A decision of the First Tier Tax Tribunal in (Foulser and anor v HMRC [2015] UKFTT 220 (TC)), concerning the determination of the ‘market value’ of unquoted shares in a private company, raises potentially interesting points about appropriate multiples, control premiums and discounts for minority holding.

The case related to gifts of unquoted shares in 1997, being gifts by each of a husband and wife into companies held within insurance bonds, of respectively a 51% holding and a 9% holding. Each was deemed, for the purposes of capital gains tax, to be a disposal at ‘market value’.

The taxpayer and HMRC each had independent share valuations prepared. These produced substantially different values. As the parties were unable to reach an agreement, the case was referred to the First Tier Tax Tribunal which proceeded to give its own view as to the market value of the shares. The Tribunal’s decision was much closer to the value and approach preferred by HMRC than that of the taxpayers.

William Franklin, a chartered accountant specialising in the valuation of shares and employee share plans comments: “As the facts differ in each situation, it may be inappropriate to seek to draw from this decision of the Tribunal any principles applicable to other situations.”

“It was a very long period of time between the chargeable event and the Tribunal determining the ‘market value’ of the shares and it might have been hard for the Tribunal’s view not to be coloured to some extent, by the benefit of hindsight. The decision was only at the First Tier and it is perhaps surprising that the Tribunal had sufficient self-confidence and valuation expertise to determine its own valuation. It will be interesting to see if HMRC SAV seek to adopt the approach taken by the Tribunal more widely for other share valuations. HMRC have been asked for their views on the decision at the next Fiscal Forum for Share Valuers on 8 October 2015.”

For a confidential discussion about share schemes and share valuations, contact William Franklin at Pett Franklin on 0121 348 7878 or email .

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should take appropriate professional advice upon their own particular circumstances.