In Diane Nice and Ron Robinson v HMRC [2021] TC8228, the First Tier Tribunal (FTT) found that the market value of shares gifted to charity was 46.5p and not £1.05 per share (as claimed for Income Tax relief), after considering and dismissing conflicting expert witness statements.

  • The taxpayers subscribed for shares in Mount (York) Limited (MYL) at an average price per share of 25.6p in November 2005. Various other individuals subscribed for shares in the same way.
  • MYL then acquired two engineering companies for a total of £5.9m in November and December 2005.
  • The acquisitions were funded by £2.4m of funds raised by incoming investors and £3.5m of loans from a bank.
  • MYL was then listed on the Channel Islands Stock Exchange (CISX) on 19 December 2005.
  • Immediately following the listing there was (limited) trading in the company at £1.05 per share.
  • The taxpayers gifted all of their shareholdings to charity in January 2006.
  • Income tax reliefbased on a share valuation of £1.05 per share was claimed in their 2005/06 tax returns.
  • HMRC raised enquiries and issued closure notices in April and May 2013 on the basis that the value of the shares was no greater than 39p per share.
  • The taxpayers appealed the closure notices to the FTT.

The FTT found that:

  • It was their job to decide the market value of the shares on the relevant date.
  • They were not bound by valuations from either expert witnesses provided by HMRC or the taxpayers.
  • The correct approach required considering various different valuation methods and giving weight to each to arrive at a best estimate of the highest price the hypothetical purchaser would pay, the market value.
  • When considering the information on which to base the valuation:
    • A hypothetical purchaser would make all reasonable enquiries and would receive true and factual answers to those enquiries.
    • Confidential information would not be made available to them and could not be taken into account in valuing the shares, this excluded commercially sensitive forecasts from consideration.
    • Accounts for the two subsidiaries and their purchase agreements would have been in the public domain and available for consideration by the hypothetical purchaser.
    • MYL had no trading history, had taken on debt to fund the purchases and that it was not intending to pay dividends were relevant depreciatory factors.
  • The appropriate multiple was 8.4 which was calculated:
    • Based on the multiples from the purchase transactions by MYL which was in the public domain.
    • Adjusting that multiple up to reflect the listing on CISX.
    • Comparing to multiples on listed companies (on the London Stock Exchange) and discounting those to reflect the more limited liquidity offered by a listing on CISX.
  • Applying this multiple made the price per share 46.5p.
  • The FTT considered the increase in value over a short time as reasonable due to considering a subsidiary was acquired at a favourable price and the extra liquidity that a listing on CISX would offer.
  • The FTT concluded the hypothetical purchaser would discount the ‘market trades’ at £1.05 per share questioning why, if the shares had quadrupled in value in such short order, more shareholders did not take advantage and sell their shares at the time.

Useful guides on this topic

Valuations: Companies
When might a tax valuation be required? What are the main principles in valuing unquoted companies?

Gifts to charity
Gifts to Charity: can you obtain tax relief on a gift to your local charity or community amateur sports club? What about gifts to your church, mosque, synagogue? Do you need to be a taxpayer? Are there any tax reliefs?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Diane Nice and Ron Robinson v HMRC [2021] TC8228

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