ERSM20400 - Employment-related Securities and Options
Meaning of "market value"
Old legislation
In the old legislation the principle for valuing securities varied according to the charging provision in point:
- money’s worth, which is something capable of being converted into money or something of direct monetary value (e.g. ITEPA03/S62),
- what might reasonably be expected to be obtained from a sale in the open market (e.g. Chapter 5 on securities options), and
- the Capital Gains tax (TCGA) value (e.g. Chapter 8 Part 3 on notional loans).
Current legislation
To establish some consistency, all Chapters within Part 7 of ITEPA 2003 now use the TCGA definition of market value as does the related legislation on CT deductions in FA03/SCH23. However, the charge on acquisition of securities is still often the money’s worth charge under ITEPA03/S62, although this may be modified by reference to TCGA where, for example, there is a charge on acquisition under Chapter 3C. In practice, there is rarely any difference in the valuation between these different bases. If the basis of valuation appears to be material, consideration should be giving to seeking the view of Shares Valuation.
TCGA 1992 valuation
ITEPA03/S421 establishes that “market value” has the same meaning as Part 8 of TCGA 1992. In particular, TCGA92/S272 provides the general rule:
(1) In this Act "market value" in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.
(2) In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time.
(3) Subject to subsection (4) below, the market value of shares or securities in The Stock Exchange Daily Official List shall, except where in consequence of special circumstances prices quoted in that List are by themselves not a proper measure of market value, be as follows-
(a) the lower of the 2 prices shown in the quotations for the shares or securities in The Stock Exchange Daily Official List on the relevant date plus one-quarter of the difference between those 2 figures, or
(b) halfway between the highest and lowest prices at which bargains, other than bargains done at special prices, were recorded in the shares or securities for the relevant date,
choosing the amount under paragraph (a), if less than that under paragraph (b), or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b) if less than that under paragraph (a).
(4) Subsection (3) shall not apply to shares or securities for which The Stock Exchange provides a more active market elsewhere than on the London trading floor; and, if the London trading floor is closed on the relevant date, the market value shall be ascertained by reference to the latest previous date or earliest subsequent date on which it is open, whichever affords the lower market value
TCGA92/S272 provides the modifications for unquoted securities:
(1) The provisions of subsection (3) below shall have effect in any case where, in relation to an asset to which this section applies, there falls to be determined by virtue of section 272(1) the price which the asset might reasonably be expected to fetch on a sale in the open market.
(2) The assets to which this section applies are shares and securities which are not quoted on a recognised stock exchange at the time as at which their market value for the purposes of tax on chargeable gains falls to be determined.
(3) For the purposes of a determination falling within subsection (1) above, it shall be assumed that, in the open market which is postulated for the purposes of that determination, there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it form a willing vendor by private treaty and at arm's length.
