In Brian Foulser and Mrs Doreen Foulser v HMRC [2015] TC 04413 both parties share valuation experts failed to reach any agreement as to the market value of an unlisted company.

The taxpayers had made gifts of their shares to insurance bonds in a failed tax avoidance scheme and despite appealing all the way to the Court of Appeal their claim to hold over gains under section 165 TCGA 1992 did not succeed. They then found themselves subject to CGT on the market value of their gifts and this appeal concerned the valuation of their shares.

Mr Foulser had made a gift of his holding of 51% of their company BG Foods Limited and Mrs Foulser 9 %.

In evidence it was found that the company was a food wholesaler with a small production range. Prior to taking part in the failed tax scheme they had received various offers for their combined 60% interest in the company as follows:

  •         £27 million in loan notes for a 60% interest based on profits of 4.5m,
  •         £16.42 in for cash,
  •         £24.5 in share based on operating profits of 3.5m

Valuation of the gifts

The two experts used different methodology. Mr Spense, on behalf of the appellants used a version based on estimating future maintainable earnings and adjusting for foreign exchange differences and future interest on capital. Taking capitalisation figures from BDO’s Private Company Index. He valued the 9% holding on a dividend yield basis.

Mr Glover for HMRC took a sample of 6 companies in similar sectors in order to estimate a price earnings ratio and then took historic adjusted profits in estimating maintainable earnings.

The tribunal found that “Share valuation is not a science, there is no prescribed formula by which shares in a private company are to be valued” and it preferred HMRC’s methodology

The tribunal found serious flaws in Mr Spense’s methodology both in the concept of future maintainable earnings (a purchaser would surely use past profits) and the use of a capitalisation factor derived from the PCPI (there is no transparency of the PCPI: it is impossible to take a view on comparability).

In terms of valuing the 9% holding on a dividend yield basis, the company had not paid dividends for some time. It did not consider that a prudent purchaser would use dividend yield when there was not prospect of any dividend being paid. In any event, a purchaser would have been aware of number of bids for the company.

There was some “mud slinging” between the parties in terms of the valuation, it was claimed at various times that HMRC’s witness, Mr Glover was contradicting his own book, for example, he had stated that [the P/E ratio] should be avoided when valuing unquoted company shares, however the tribunal noted that this was out of context because it did not relate to purely fiscal valuations.

The Tribunal adjusted HMRC’s figures to produce (see table below).


Earnings starting point


Whole company value

Discount for 51%

Adjustment for 9% holding

Value of 51%

Value of 9%


Estimated future maintainable earnings of £31.615m

Capitalisation of 8 to 10

£12.1m to £16.1


Dividend yield basis 6%




Post tax projected profits of £2.6

P/E ratio of 15, control premium of 40%, giving P/E of 21








P/E 15 x 35% control premium giving P/E of 20.25








The case reveals the enormous difficulty for any adviser, let alone any expert in attempting a desk valuation for a private company. Despite stating that there "is no prescribed formula" in valuing an unlisted company, the tribunal did prefer the tried and tested method of working out maintainable earnings and then using a suitable multiplier based on price/earnings multiples. We have in recent cases seen a preference for this approach.

The P/E multiplier in this case was quite high because food manufactuing/production was a boyant sector at the time and company was of a decent size (which is why it had been so attractive to buyers). Some key pricinciples can be extracted in considering a trading company:

  • A buyer will generally rely on past profits in determining maintainable earnings.
  • The PCPI index can only ever be a general guide, because of its lack of transparency.
  • If you are able to find comparable listed companies these might give a better indication of P/E ratios, although you will need to discount the results. A control premium should be added to published figures (which normally just list share prices) as necessary.
  • Dividend yield is an unsuitable methodology if the company has not got a history of regular dividends and there is evidence that other buyers have been interested in the company.

Brian Foulser and Mrs Doreen Foulser v HMRC [2015] TC 04413