Shares and Assets Valuation

An introduction

Contents

Introduction

Shares and Assets Valuation is a specialist area within HMRC Charities Assets and Residence.

We are happy to deal with you directly on all share valuation matters. However, it is a specialised subject and can involve highly complex issues so you may wish to consider appointing a professional adviser, such as, an accountant, solicitor or valuation expert to represent you. If you do, we will gladly liaise with them too.

You can get general advice on share valuation issues from our Helpline.

Shares and Assets Valuation

This page may not cover every point that interests you. If you have any queries, advisers at one of the offices listed below will be pleased to help you. Our offices are open from 9.00am to 5.00pm Monday to Friday.

Shares and Assets Valuation
HMRC Charities Assets and Residence
Fitz Roy House
PO Box 46
Castle Meadow Road
Nottingham NG2 1BD

Helpline

What do you do?

Whenever the value of unquoted shares is relevant to your tax affairs, your Tax Office will instruct us to consider and negotiate that value with you, or your professional advisers.

We also deal with the valuation of other assets for tax purposes, including:

  • Copyrights.
  • Goodwill.
  • Bloodstock.
  • Livestock.
  • Underwriting interests.

However, this page deals with unquoted shares and with claims that both quoted and unquoted shares have become of negligible value.

We have gained substantial information and knowledge over a long time about:

  • the economy
  • specific industries
  • companies.

This, and the experience and expertise of our valuers, means that we are able to negotiate and agree values that are fair and consistent for everyone. We settle over 20,000 valuations each year.

When am I likely to have dealings with you?

We may approach you whenever the value of unquoted shares is relevant to your tax affairs. Your Tax Office may instruct us to consider and negotiate the value of the shares with you, or your professional adviser.

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Valuation of unquoted shares

Why do you need to value unquoted shares?
There are many occasions when tax law requires us to substitute the open market value for either:

  • the amount paid when you acquired the unquoted shares
  • the amount you received when you disposed of them.

In addition, when you transfer unquoted shares without payment, for example, by gift or following someone's death, a tax charge may arise.

In these circumstances, we may need to value the shares so that we can establish the open market value. We can then decide whether any tax is payable and, if so, how much.

There are also special situations when a valuation may be necessary, for example, the issue of options under a company's employee share option scheme.

What taxes are involved?

About three quarters of all valuations are for capital gains tax (CGT). The remainder are mainly for inheritance tax, but we also have to deal with valuations for income tax and other purposes.

When is capital gains tax due?

CGT may be due when you dispose of an asset and its value has increased since you acquired it.

How do you agree a value of holdings at 31 March 1982?

Generally, we will not contact you until your Tax Office has instructed us to do so.

However, if you need 31 March 1982 minority holding values for a number of shareholders, each owning similar size holdings in the same company, we will, at your request, begin negotiations before getting formal instructions. But, we can only do this, if all the shareholders with similar size holdings wish it and if they all agree to accept the same value.

You can get more information about this by contacting us at one of the offices listed above.

The significance of 31 March 1982 for CGT purposes is explained in CGT1 'Capital gains tax. An introduction' (PDF 1.1MB).

How does Self Assessment affect the value of my shares?

Self Assessment affects the value of shares in two ways, by:

  • bringing all income and capital gains together on a current year basis
  • completing your tax return brings together figures for all income and capital gains, reliefs, deductions and claims for allowances for the same year.

The fully completed return constitutes your Self Assessment.

Your tax return may show that a capital gain (or loss) arises when you dispose of unquoted shares. If so, your Tax Office may ask us to consider your valuation and may open an enquiry into your tax return. We will then ask you for any information we need to check it.

Can you value my shares before I dispose of them?

No. We will not agree a value with you until you have completed the disposal. Even then, we will only agree a value if it is relevant to your tax affairs.

What are post-transaction valuation checks?

Individuals and trustees can have the value of unquoted shares checked by us if they wish. But, we can only do this:

  • after disposals relevant to capital gains tax
  • before the date you have to complete your Self Assessment tax return.

This is called a post-transaction valuation check. If you wish to do this, you must complete form CG34 (which you can get from any HMRC office or Enquiry Centre) and send it back to your own Tax Office. They will then instruct us.

We will check the details on your tax return and let you know if we:

  • accept the value you have provided
  • require further information from you
  • suggest an alternative value to negotiate with you.

Our valuer will try to complete the valuation process quickly. But, sometimes it will not be possible to agree values before you have to send in your tax return, which must be done by a certain date, whether or not we have completed the valuation check.

You should enter the amount of the gain (or loss) that you expect us to agree from the valuation on your tax return.

Your Tax Office may have to give you formal notice that they are carrying out an enquiry, if:

  • we have not completed a post-transaction valuation check

or

  • we have not agreed the values within 12 months after the filing date of the tax return.

Which Shares Valuation office will deal with my enquiry?

Our Nottingham office carries out the majority of valuation negotiations, including those on shares in Northern Ireland or Republic of Ireland companies. And our office in Edinburgh deals with companies incorporated in Scotland.

The office that handles your enquiry will also deal with any 'negligible value' claims you may have. For more information see Negligible value shares and securities.

How are unquoted shares valued?

The valuation of unquoted shares is not an exact science and you may need to take professional advice.

When you need the value of unquoted shares for tax purposes it should, with a few exceptions, be the estimated price that the shares would fetch if you sold them on the open market.

How can you value unquoted shares if no market exists?

There is no active open market for most unquoted shares. However, the decisions of the Courts over the years have provided guidance on how we use an imaginary open market sale to arrive at a value.

For this purpose, any valuer should consider:

  • the company's performance and financial status as shown in its accounts, and any other information normally available to its shareholders
  • the commercial and economic background at the valuation date
  • the size of the shareholding, and shareholders' rights
  • the company's dividend policy
  • appropriate yields and price earnings ratios
  • the value of the company's assets
  • any other relevant factors.

Does the size of the shareholding affect a valuation?

The valuation must reflect the extent to which a potential buyer of the shares can or cannot control, or influence, the company. There are many degrees of control, usually determined by the voting power of a particular block of shares. These range from full control, including power to liquidate the company, to a small or non-existent influence over the company's affairs of a minority shareholding.

Unless there are exceptional circumstances, if the degree of control is less than complete the value of the shares will be less than a pro-rata proportion of the overall value of the company.

Although this is true of any valuation, it is particularly important for CGT valuations at 31 March 1982. The asset to be valued at 31 March 1982 is usually the separate shareholding held by each shareholder at that date, even if the company as a whole has later been disposed of or the shareholdings have changed as a result of transfers since that date.

Example

Two shareholders own a company with 10,000 £1 shares. One of them owns 1,000 shares, the other owns 9,000. The owner of 9,000 shares has control of the company.

They sell the company to an unconnected company in 1997 for £ 1 million, that is, equivalent to £100 per share. The owner of 1,000 shares may well receive £100,000, that is, the same amount per share as the owner of the remaining 9,000 shares (which give that person control).

However, the 1,000 shares will be valued on their own at 31 March 1982 and would have a much lower value per share than a control holding.

The law requires us to value the shares and the rights and prospects attaching to them. For example, even though you held only 10% of the shares in a company, you may have been a director and exercised considerable influence on the company affairs. But, when valuing your shares we can only look at the rights that they would give to any purchaser, which would not necessarily include the right to be a director.

What information do you need?

In all cases, we will need:

  • a full description of the business carried out by the company
  • the company's accounts for the last three years before the date of valuation
  • details of any minority holdings to be valued, and any restrictions on the transfer of shares
  • details of any different classes of shares, with a statement of the rights of each class, in particular those concerning voting, dividends and distributions on a liquidation of the company.

We will try to obtain these details and any other relevant information from official sources, including:

  • HMRC records
  • company returns lodged at Companies House.

It will help us if you send in with your tax return the details and documents listed above, along with a reasoned opinion of the value of the shares.

If the company is a farming company or a property investment company, or if the shareholding is a majority holding, the value of the company's land or buildings will be an important factor.

It helps us if you can provide full details of the land and buildings, so that the District Valuer can advise us on its value. Full details include:

  • the address or a plan
  • whether the property was freehold or leasehold
  • particulars of any lettings
  • an estimate of value.

How do you conduct valuation negotiations?

When we have gathered all the relevant information, our valuer gives an opinion of the value of the shares and compares it with the value you have suggested.

If, for any reason, we cannot accept your valuation we will give you a full explanation and our own opinion of the value. We will aim to give you an alternative value as soon as we can, though in some cases this will be provisional and we may need to change it if further information or research is discovered.

We will then negotiate with you, or your professional advisers, so that we can reach an agreement which is fair and reasonable and in accordance with the basis of valuation laid down by law.

How long will it take to agree a valuation?

This will depend on many factors, including:

  • how long it takes us to get all the necessary information. If, for example, the holding is one that would give control of a company, it may be necessary to agree the value of all the company's assets and to have much more information about the company's performance and prospects than is in the published accounts
  • whether the District Valuer needs to value the company's land and buildings.

Our aim is to deal with all valuations quickly and efficiently. We settle the majority of valuations within a year, although some negotiations can take considerably longer.

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Negligible value shares and securities

What happens to negligible value shares and securities?

If you claim your shares or securities have become of negligible value, your Tax Office may ask us to investigate the situation.

Is there a rule of thumb test to define 'negligible'?

No. The test is an objective one.

A rule of thumb percentage of either the nominal value of the securities or of the price for which you originally acquired them may not work. The securities could pass such a percentage test but still have significant value. We consider each case on its own merits.

Why might I want to make a negligible value claim?

You may be able to offset any loss arising against income or capital gains tax as long as you meet all of the relevant conditions. See the Helpsheet IR286, or contact your local HMRC office for further information.

How do I make a claim?

In the first instance, contact your Tax Office. You can make a claim for 'negligible value' by making an entry on your tax return or by letter.

Do you publish lists of companies whose shares are of negligible value?

We publish lists of shares and securities in companies formerly quoted on the London Stock Exchange that we have already accepted are of negligible value on our website.

There is no similar list published for unquoted companies.

If your shares are not shown on this list, or are in unquoted companies, when you submit your claim to your Tax Office you should let them know if the company:

  • is in liquidation or receivership, and send them
    • a statement of affairs relating to the company and any subsidiaries
    • a letter from the liquidator or receiver showing whether any return will be made to the shareholders
    • details of how this decision was reached, for example, a balance sheet showing significantly more debts than assets
    • any evidence that no recovery or rescue of the company is likely, for example, a statement that the company has ceased trading
  • is not in liquidation or receivership, and send them comprehensive information to show that the shares or securities have become of negligible value. For example, it is not enough just to say that listed securities have been suspended (that is, the lists no longer quote prices for the relevant securities). The burden of proof for the claim lies with you.

For quoted shares, you may first telephone us to see if we have declared a company's shares to be of negligible value and, if so, from what date. But, for unquoted shares, we cannot advise on the acceptability of negligible value claims over the telephone before you have made a claim to your Tax Office.

Can I just show a reduction in the value of my shares?

No. The fact that your shares or securities have fallen in value, perhaps considerably, does not mean they are of negligible value. You must demonstrate that they are.

Can a company claim investments in other companies are of negligible value?

Yes. Like any other taxpayer, if a company holds investments in other companies it may submit a negligible value claim to its Tax Office.

Can I make a negligible value claim for foreign shares?

Yes. As for UK shares, you will need to send your claim (with whatever supporting evidence you can obtain) to your Tax Office. They will then send it to our specialist section Shares Valuation (Foreign), based at the Nottingham address.

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Help and advice

Shares and Assets Valuation manual

You can get more information in our SV manual

Shares and Assets Valuation Helpline

You can get general advice on valuation issues from our Helpline.

Employee Share Schemes

The Employee Employee Shares and Securities Unit offer advice on various types of schemes available. For more information, visit our Shareschemes pages where you can find a link to Shares Valuation and the steps you need to take to agree a value, and the following forms for requesting a share valuation:

You can also follow this link to contact the Shareschemes Team.

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Appeals

What happens if I cannot reach an agreement with Shares Valuation?

We settle the vast majority of valuations referred to us by negotiation. However, it may be necessary to arrange an appeal hearing before the Special Commissioners to resolve the matter. If this involves the value of land owned by the company, the Lands Tribunal will hear the appeal. Both bodies are independent of the HMRC.

You can get further details from the following:

Clerk to the Special Commissioners
15-19 Bedford Avenue
London
WC1B 3AS

Lands Tribunal
48-49 Chancery Lane
London
WC2A 1JR