Shares and Assets Valuation (SAV) is a specialist area within HM Revenue & Customs (HMRC) based in Nottingham. In addition to valuing unquoted shares we also value intangible assets (intellectual property, trademarks, patents, goodwill etc), foreign shares, foreign residential property, bloodstock, chattels (things like antiques, art and jewellery), boats, aircraft and a whole range of other assets. When the open market value of any of these assets is relevant to your tax affairs, your Tax Office may instruct SAV to consider and, if necessary, negotiate that value with you. Depending on the circumstances, you may be able to ask SAV to consider the value once the transaction has occurred and before you file your return, using the Post Transaction Valuation Check (PTVC) service.
This page provides some guidance on the points you should consider when preparing/submitting a valuation of some of the main assets SAV considers. If you have any general valuation queries, advisers at the enquiry line detailed below will try to assist where possible. They are only able to provide general guidance and cannot comment on specific valuations or tell you how to carry out a valuation.
SAV's full address is:
HMRC Shares and Assets Valuation
PO Box 38
Castle Meadow Road
DX 701201 Nottingham 4
Fax: 03000 562705
Enquiry line: 0300 123 1082 open from 8.00 am to 4.00 pm Monday to Friday)
NB. The enquiry line cannot give advice on any tax matters.
For enquiries relating to Capital Gains Tax and Income Tax (ITEPA), please contact your Inspector of Taxes.
For Stamp Duty and Inheritance Tax, try the following helpline telephone numbers:
SAV undertakes the valuation of a wide range of asset for all tax purposes. As there is no active market for most of the assets considered by SAV, decisions from the Courts over the years have provided guidance.
When carrying out valuations for tax purposes it is important that they are carried out on the correct basis. Under Self Assessment procedures taxpayers are responsible for either calculating the appropriate amount of tax due or, in the case of individuals, for providing the appropriate figures to enable HMRC to calculate it on their behalf. If a valuation is not provided on the correct basis a taxpayer's tax return may be challenged by HMRC. If following any challenge the valuation has to be adjusted the taxpayer may be faced with having to pay not only interest on any additional tax payable but penalties as well.
The correct basis of valuation for tax purposes is the 'market value' as defined in the relevant statute. The definition of market value for Capital Gains Tax can be found in Section 272 of the Taxation of Chargeable Gains Act 1992, for Inheritance Tax it can be found in Section 160 of the Inheritance Tax Act 1984 and for Stamp Duty Land Tax in Section 118 of the Finance Act 2003.
These definitions are all very similar and broadly define market value as:
'The price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price shall not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time.'
The current statutory definitions are similar to those used in earlier Acts and over the years the above definition has been examined by the courts in numerous cases. The case law was usefully summarised by the Court of Appeal in the case of IRC v Gray (Executor of Lady Fox (Deceased) in 1994. The case law has established some important assumptions that must be made when arriving at the market value in accordance with the above definition.
Case law has established the following assumptions:
In Capital Gains Tax cases the valuation date may be the 31 March 1982 (when required by Section 35(2) of the Taxation of Chargeable Gains Act 1992), or, when it is necessary to assess the market value at the date of actual acquisition or disposal, the date a binding contract was entered into.
SAV does not undertake the valuations of UK land and buildings for tax purposes. The Valuation Office Agency (Opens new window) deals with these valuations. See Valuation of UK Land and Property for more details.
The links below provide guidance on the points you should address and the evidence you should provide when preparing/submitting a valuation for some of the different assets SAV considers. Providing this information should increase the chance of your value being accepted or, if this is not possible, reduce the length of time it takes to agree a value with you.
SAV is happy to deal with you directly on all valuation matters. However, valuation 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, it will gladly liaise with them too.
For any valuation of unquoted shares, whether registered in the UK or a foreign country, you should consider/provide the following information:
The valuation must reflect the extent to which a potential buyer of the asset can control, influence and derive enjoyment from the asset. Usually, if the degree of control of the asset is less than 100 per cent, then the value of the percentage share of the asset will be less than a pro-rata proportion of the asset's total value.
In terms of unquoted shares, 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.
The standard of information used in a valuation is also linked to the size and influence of the shareholding in question. The greater the influence a shareholding has then more detailed and sensitive information about the company can be used in addition to the company's accounts.
This guidance is aimed at assisting smaller companies in the preparation of their own valuations for EMI purposes.
For background to the EMI options see the Employee Share Schemes User Guide Manual at ESSUM50000.
The valuation of unquoted shares can be complex and this guidance is aimed at those with the most straightforward circumstances in low tax risk situations. The following are examples of valuation methods in a number of commonly encountered circumstances. They should not necessarily be regarded as authoritative, exhaustive or definitive, merely as illustrations of what might be acceptable to SAV for the purpose of agreeing EMI valuations.
The overriding principle remains that no two companies are the same and each valuation must be considered on its merits and the relevant facts.
a) The valuation concerns a technology based, first year start up company, with no trading history.
The Issued Share Capital (ISC) consists of 2 million shares, 200,000 1p 'A' ordinary shares and 1,800,000 1p ordinary shares.
The two classes of shares rank pari passu apart from the 'A' shares having the right (under the Company's Articles of Association) to appoint 2 directors to the Board and rank before the ordinary shares on a return of capital.
The ordinary shares are also subject to risk of forfeiture and pre-emption provisions.
All the 200k 'A' ords are owned by an external investor, who recently paid £2m for their 10% minority shareholding, equating to £10 per share.
The company is now looking to grant EMI options over a pool of 10% of as yet unissued shares to its employees.
There is currently no sale or flotation in prospect but the company has plans for such an eventuality within the next 3 to 5 years.
Valuations are needed for the Actual Market Value (AMV) and the Unrestricted Market Value (UMV) of the ordinary shares, at the date the EMI options are granted.
See the Shares and Assets Valuation Manual at SVM110050.
The company has no trading record and the assets largely consist of the balance of the cash from the investment and some intangible assets.
To value the ordinary shares, it may be reasonable to look to the price paid by the investor for their 10% shareholding, as it provides a tangible starting point.
To allow for the lesser share rights of ordinary class of shares (to the 'A' ords) a discount of around 30% or more (from the £10 per share paid for 'A' shares) might be reasonable depending on the exact fact pattern - indicating an Actual Market Value (AMV) of £7 per ordinary share.
For the Unrestricted Market Value (UMV) the risk of forfeiture and pre-emption provisions are to be ignored and so a 10% premium might be reasonable, indicating a UMV of £7.70 per ordinary share.
b) An alternative start up company scenario might, unlike the above example, involve no external investment, with all the initial capital being provided by the founder shareholders.
For instance, 2 individuals may set up a company with each subscribing £50,000 of their own money and having 50,000 £1 shares issued to them in return. The ISC would then be a total 100,000 £1 ordinary shares.
The two founders may wish to recruit some key staff to build the business but, as the company could not at that stage afford commercial salaries for the new employees, they may wish to give them EMI options over a pool of 10,000 shares in total.
As in the example above, the company has no trading history and little in the way of assets. In view of this, it might be reasonable to value the minority holdings over which the new employees will hold EMI options, by reference merely to the par value of £1 per share paid by the founders. It might be reasonable to discount the par value if the founders have some preferential rights over and above those of the employees, by virtue of the terms of the Articles of Association.
Your attention is drawn to the caveats at the start of this section.
A company has been trading for around 10 years and wishes to incentivise its employees by granting them a pool of up to 5% of the company's enlarged share capital. The company is not currently in the process of a sale or flotation.
The company's most recent performance is:
Full audited accounts to Nov 2010
Full audited accounts to Nov 2011
Management accounts to Nov 2012
Post tax profit
£1 per share
The fully diluted share capital would be 200,000 £1 ordinary shares.
The management accounts for 2012 have been utilised as it is considered that the last published accounts (to Nov 2011) are now stale at the valuation and it is reasonable to take into account more up to date information.
Based on this record of profits, maintainable earnings are taken as £600k per annum, which equates to earnings per share (eps) of £3, on the basis of the fully diluted share capital.
Dividends are maintainable at £1 per share and are well covered.
A quoted company (on full London Stock Exchange) that operates in the same market as this company, shows a price earnings (p/e) ratio of 12.03. Applying a discount of around 60% to 65% to the quoted p/e - to reflect the differences between a minority holding in this company and the quoted company - indicates a final p/e ratio of 4.5*
Applying a p/e of 4.5 to eps of £3 then indicates an AMV of £13.50 per share for a minority holding in this company.
Looking at the dividends, the same quoted company had a dividend yield of 3.40%. Increasing this by a multiple of say around 2 - once again to reflect the differences between the quoted company and this company - indicates a revised yield % of 7.4%.
Applying this yield to the maintainable dividend of £1 per share (equal to 100%) then indicates an AMV of £13.50 per share, ie the same as the valuation on an earnings basis.
The UMV can then be taken at around a 20% premium to the AMV, ie at £16.20 per share, to reflect the fact that the Articles of Association for the company give the Board full veto on any share transfers and this and other restrictions are to be ignored when considering the UMV.
* A suitable multiple (of profits) may also be arrived at by reference to data on the sales of companies - both private and quoted - in similar markets to the company under consideration. Careful research of the terms of such company sales should be undertaken by the valuer before such transactional multiples are utilised, to ensure that the implied multiples are, so far as possible, reliable and comparable.
If the company has a high level of debt on its balance sheet, which reduces any post tax profits substantially, the value of its shares can be arrived at by reference to an Enterprise Valuation (EV) looking at its maintainable Earnings Before Interest Depreciation and Amortisation (EBITDA). It is then possible to apply an EBITDA multiple from a comparable quoted company. Deducting the company's debt from the resulting EV will then leave the Equity Value, from which the minority share value can then be assessed, utilising appropriate discounts.
Whilst EBITDA multiples for quoted companies are not available in publications such as the Financial Times, these can be calculated by the valuer, usually by adding a particular quoted company's Market Capitalisation to its long term debt, to arrive at its EV. The EBITDA for the quoted company can then be calculated by reference to its accounts and dividing the EV by the EBITDA, to give the multiple. It can then be appropriate to discount the quoted company's EBITDA multiple to reflect the differences between the quoted company and the unquoted company which is being valued.
Your attention is drawn to the caveats at the start of this section.
A previously private Computer Software company is scheduled to float on AIM in the next two weeks but wishes to grant EMI options to employees beforehand.
The price that investors are invited to subscribe for shares, which will also constitute the opening price on AIM, will be £2.50 per ordinary share.
The employees will be granted EMI options over the same ordinary class of share as will be floated on AIM but there will be individual performance targets in their option agreements that will determine when they can exercise their options.
A small discount may be appropriate, depending on the facts, to reflect any risk that the float may not go ahead in the scheduled time frame.
It may therefore be reasonable to use the price of £2.50 per share or - subject to the above factor - very close to this, as both AMV and UMV for the purpose of granting the EMI options.
No adjustment/discount is required (for a valuation for option purposes) to reflect the performance conditions restricting the employees' freedom to exercise their options, as these conditions are personal to the employee only.
Your attention is drawn to the caveats at the start of this section.
A component production company is in talks with a competitor business for a sale of the company. The sale price, subject to due diligence, will likely be comprised of cash and a small earn-out element.
In anticipation of a sale, the company wishes to grant EMI options over 10% of the (fully diluted) share capital to its employees.
The likely sale proceeds are not known but the range equates to £20 to £22 per share - on a pro rata basis.
In the light of the impending sale, it is reasonable to value the shares over which options will be granted to the employees by reference to the possible sale proceeds per share.
Depending on the level of risk, uncertainty over the final amounts payable and also the timing, it might be reasonable to apply a discount in the range of 15% to 30% indicating a share value of around £14 to £18 per share for the EMI options. It will depend on the specific circumstances of the company as to whether a differential is required between the AMV and UMV.
Your attention is drawn to the caveats at the start of this section.
Note. A sale may affect a company's qualifying status for EMI under Sch. 5 Para 9(3) ITEPA 2003. For further guidance see the Employee Share Schemes User Guide Manual at ESSUM52100.
You may be able to offset any loss arising against income tax or Capital Gains Tax as long as you meet all of the relevant conditions. To make a claim, in the first instance you must contact your Tax Office who may ask SAV to investigate the situation. You can make a claim for 'negligible value' by making an entry on your tax return or by letter. Contact your local HMRC office for further information or see Help Sheet HS286.
If the company is in liquidation or receivership you should provide the following:
If the company is not in liquidation or receivership, then comprehensive information is needed to show that the shares or securities have become of negligible value. The burden of proof for the claim lies with you.
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. SAV consider each case on its own merits.
To qualify, the asset must have become of negligible value, it may therefore be necessary to consider the value of the shares/assets when they were acquired to ensure that they were not of negligible value when they were acquired. You should provide evidence to show that the assets had value when they were acquired.
SAV publish a list of shares and securities in companies that were formerly quoted on the London Stock Exchange that have been previously accepted as being of negligible value. However, even if a company appears on the Negligible Value List then you still have to submit your claim to your Tax Office as above. The list is available at the following link Negligible Value List.
There is no similar list published for either unquoted companies, companies formerly quoted upon the Alternative Investment Market and PLUS Market or any non-UK companies.
Goodwill is an asset within the meaning of TCGA92/S21(1). The term 'goodwill' is however not defined for the purposes of the Capital Gains legislation in TCGA 92. The leading authority on its meaning is found in IRC v Muller & Co Margarine (1901) AC217 where in answer to the question 'What is goodwill?' Lord Macnaghten said 'It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old established business from a new business at its first start'.
The decision of the Special Commissioners in Balloon Promotions Ltd v Wilson SpC524(2006)STC(SCD0167 provides authority for the fact that for Capital Gains purposes goodwill should be construed in accordance with legal rather than accountancy principles. A distinction must therefore be drawn between 'goodwill' for Capital Gains Tax purposes and 'goodwill' within Sch29 FA 2002 where accountancy principles apply and 'goodwill' is simply the difference between the overall worth of a business when it changes hands and the value of its identifiable (including intangible) assets.
When valuing the goodwill of a business you should consider and provide details of:
SAV may be asked to consider the value of quoted shares where:
You should provide your best estimate of the value of the stock together with supporting evidence and if applicable the exchange rate used.
Intangible assets are non-financial fixed assets that do not have a physical substance but are identifiable and controlled through custody or legal rights. They include:
Identification of intangible assets can be very difficult and involve a range of complicated issues, especially in respect of intellectual property. You may want to seek specialist guidance if the circumstances of your case are complex.
Intangible assets are often valued either on a multiple of profit/income stream or using a discounted cash flow. When submitting a valuation of an intangible asset you should consider and provide details of:
SAV may be asked to consider the valuation of chattels including:
If the valuation is for Inheritance Tax purposes, you will need to complete Form D10 which is a supplementary schedule attached to the IHT200. This will guide you through the information you need to provide.
For all valuations you need to consider/provide, as appropriate:
SAV may be asked to consider the valuation of bloodstock, primarily race horses, and livestock herds for tax purposes. When preparing/submitting a valuation of bloodstock and livestock you should consider/provide details of:
The value of a Name's Lloyd's underwriting interest normally qualifies for Business Property Relief at 100 per cent under IHTA 84/S105(1)(a) to the extent that the Funds at Lloyds (FAL) are commensurate with the amount of underwriting business that is being written by the Name. As a rule of thumb, Business Property Relief is not restricted as long as the value of the Funds at Lloyds assets are not substantially greater than the minimum Funds at Lloyds requirement. When preparing/submitting a valuation in respect of a Name's underwriting interest, you need to consider/provide details of:
SAV may be asked to consider the value of foreign property and land, including timeshares. When preparing/submitting a valuation of foreign land/property, you will need to consider/provide as appropriate:
Individuals and trustees can have the value of unquoted shares and goodwill checked by SAV if they wish. But, SAV can only do this:
This is called a post transaction valuation check. If you wish to do this, you should complete form CG34 (which you can get from any HMRC Office or Enquiry Centre) and, for individuals, partnerships and personal representatives send it direct to the address shown on the form.
Where appropriate, SAV will check the details on your CG34 and let you know if it:
SAV's 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 the due date, whether or not SAV have completed the valuation check.
You should enter the amount of the gain (or loss) that you expect SAV to agree from the valuation on your tax return.
Your Tax Office may have to give you formal notice that it is carrying out an enquiry, if:
Once the filing date has passed SAV will only continue with an ongoing PTVC request if the Tax Office requests us to do so.
There is no formal PTVC service for Employment Income PTVCs. Requests for such valuations should now be directed to:
Personal & Capital Gains Tax Compliance
2nd Floor (West Wing)
Fitz Roy House
Castle Meadow Road
Quoting reference: LC/P+CGTC/S0842/PTVC
Form CG34 should NOT be used.
The following information should be included with the request:
All the above information must be included before the question of valuation can be considered.
Once all the required information has been provided, the Local Compliance Nottingham Team will ensure that the valuation request is appropriate and then refer the request on to SAV for consideration.
Whilst this ITEPA PTVC service is available for the time being, all areas
of HMRC work are subject to close scrutiny and there is no guarantee that
it will be maintained.
What happens if I cannot reach an agreement with Shares and Assets Valuation?
SAV settle the vast majority of valuations referred by negotiation but if it is not possible to reach a negotiated agreement it will be necessary to arrange an appeal hearing before the Tax Tribunals to resolve the matter.
The Tax Tribunals system was introduced on 1 April 2009 and further details are available on the Finance and Tax Tribunals (Opens new window) website
You can get more detailed information about the work of Shares and Assets Valuation in the SAV Manual that is available at the following link:
SAV annually meet with external practitioners at the Share and Assets Valuation Fiscal Forum in order to exchange views and opinions on technical and practical matters. The Forum provides an opportunity to clarify current practice and to update practitioners on procedural matters. There is a separate forum for matters relating to chattels.
The minutes of these forums can be found at the following links:
Further information about the underlying taxes can be found at:
The valuation of UK land and buildings for tax purposes is undertaken for HMRC by the Valuation Office Agency (Opens new window).
For information on what is the correct basis of valuation for tax purposes, what are the assumptions derived from case law and what is the date of valuation see here and Practice Note 1 of the VOA's Inheritance Tax Manual (Opens new window).
When reporting any valuation for the purposes of Capital Gains Tax, valuers should normally state that the valuation has been carried out in accordance with RICS guidance note UKGN3, which applies to Capital Gains Tax, Inheritance Tax and Stamp Duty Land Tax. If a valuer is requested by a taxpayer to adopt a different basis or depart from the above assumptions this should be made clear in the report.
The UKGN3 assumptions may result in a market value for tax purposes that is different from that adopted for other purposes as in Practice Statement 3.2. For example, if there is a special purchaser in the market for the property at the valuation date then the market value for tax purposes may reflect the bid of the actual special purchaser whereas the definition of market value in PS 3.2 requires any element of special value to be disregarded because it is only assumed that there is a willing buyer, not a particular willing buyer. The market value in accordance with PS 3.2 will therefore only reflect the hope of the buyer perhaps selling the property or interest on to the special purchaser at some future date.
No, there are differences in some cases for Inheritance Tax purposes (agricultural properties) and in some less common instances for Income Tax and Corporation Tax.
Valuers who are RICS members are bound by their Code of Conduct to act with independence, integrity and objectivity and must provide an honest view in accordance with the statutory definition and case law. If a taxpayer makes such a request valuers need to explain that valuations are subject to scrutiny by the Valuation Office Agency on behalf of HMRC and if this leads to negotiation which results in a materially different tax assessment the taxpayer could be faced with a claim for interest and penalties.
This is becoming more difficult as the years go by and to assist taxpayers with indicative levels of value, the Valuation Office Agency (VOA) publishes a 1982 Property Market Report (Opens new window).
The valuation of undivided shares in property often causes difficulties. In certain circumstances an undivided share in property is considered to be less valuable than the arithmetic proportion of the entirety interest and for this reason a discount may be appropriate. This follows guidance from decided Lands Tribunal cases. A discount may be appropriate in valuing an undivided share in 1982 that was held jointly even though the entirety interest was sold. Whether a discount is appropriate or not will depend on the circumstances. Detailed guidance can be found in the VOA's Capital Gains Tax & Other Taxes Manuals, S.7.23+ (Opens new window) and Inheritance Tax Manual, Practice Note 2 (Opens new window).
Hope value is a term that is commonly used to describe the element of the market value of a property that is attributable to the hope of obtaining planning consent for development where there is no permission for that development at the valuation date.
One of the issues that frequently gives rise to difficulties in valuations for tax purposes is the question of how much, if any, hope value should be included. For example, the making of wholly unrealistic assumptions about the planning position in March 1982 for Capital Gains Tax can lead to valuations being challenged, resulting in having to pay interest on any additional tax payable and possibly penalties as well.
Hope value tends to be a particular issue in tax valuations because the planning position at the valuation date is often very uncertain. In the real world a vendor may choose not to sell a property until planning consent has been obtained but for tax purposes we have to assume a hypothetical sale of the property at the particular valuation date reflecting whatever the planning position happens to be at that time.
Like any other valuation exercise it is important that valuers are transparent about their approach and clearly set out their views in any valuation report. Before making a judgment and arriving at an opinion of value it will be necessary to obtain all available information. Relevant information will include:
Tax valuations are often carried out some time after the valuation date when further information about the planning position may have become established. It is important to remember that it is necessary to assume a hypothetical sale of the property at the statutory valuation date and to consider the information that would have been available at that date. Hindsight evidence of what actually happened after the valuation date has to be treated with some caution.
The approach adopted by the Lands Tribunal in decided cases has generally been to consider the value of the property with planning permission and then to make deductions for deferment, risk and uncertainty to reflect the lack of planning permission at the valuation date.