HMRC Shares Valuation Fiscal Forum 10 October 2005

Present

Representative Company / Organisation

Marie-Claire Uhart Shares Valuation (SV)
Steve Gridley Shares Valuation
Paul Simpson Shares Valuation
Mike Fowler Shares Valuation
Lee Mann Shares Valuation
Tom Rollinson ESSU
Mark Evans Evans Appraisal Ltd, London
Tim Harding KPMG, London
Kevin Paterson KPMG, Birmingham
Jenny Nelder Bruce Sutherland & Co (on behalf of Institute of Directors)
Angela Belsten Ernst & Young, London
Andrew Caldwell BDO Stoy Hayward, London
Simon Jennings Rawlinson Hunter (on behalf of ICAEW)
Juliet Eadon Deloitte & Touche
Angela Hennessey A Hennessey, London
Tony Hindley Valuation Consulting Ltd, London
Ian Murphie The RM2 Partnership, New Malden
Kirti Seth Grant Thornton, Leicester
Stuart Davies Davies Consultancy
John Stevenson Tenon Ltd, Nottingham
Maresh Varia Travers Smith Braithwaite, London
Errol Danziger Danziger plc, London
Diane Elliott WJB Chiltern, London
Edward Manisty Christie's, London
Michael Weaver Gravitas Partners, London
Ruth Keates Duff & Phelps Ltd, London
Roy Hogg Parmentier Arthur Tax Services
Ben Watson Osborne Clarke Solicitors
Charles Sword PricewaterhouseCoopers, London
Colin Copeland Mazars, Bedford

Apologies

Representative Company / Organisation

Fred Cook Shares Valuation
Susan New Share Schemes
Brian Edwards PricewaterhouseCoopers, London
David Perrin Vantis plc (on behalf of CIOT)
Louise Speke The Law Society, London
Stuart Drummond Law Society of Scotland, Edinburgh
Ian Clark Turcan Connell (on behalf of Law Society of Scotland)
Steve Lygo Parmentier Arthur Tax Services, St. Ives, Cambs
John Cooper KPMG, London
John Blamey KPMG, London
Anne Daly KPMG, London
Amanda Allen KPMG, Birmingham
Ian Logan PricewaterhouseCoopers, Leeds
Alan Wallis Ernst & Young, London
Bruce Sutherland Bruce Sutherland & Co (on behalf of CBI)
Ewan Wallace W D Johnston & Carmichael (on behalf of ICAS)
Keith Eamer BDO Stoy Hayward, London
Wendy Hallam BDO Stoy Hayward, London
Trevor McDonagh Deloitte & Touche, London
Sue Tilstone Deloitte & Touche, Nottingham
Ken Read Deloitte & Touche, Nottingham
Tim Jameson Chiltern Valuation Services, London
Mervyn Woods Confederation of British Industries, London
Ian Brewer Valuation Consulting Ltd, London
Colin Paterson The RM2 Partnership, New Malden
Paul Giles Browne Jacobson, Nottingham
John Neighbour Hardcastle Burton, Hoddesdon
Jonathan Brownson Royce Peeling Green, Manchester
Richard Fleet Sir Robert McAlpine Ltd, Hemel Hempstead
David Haigh Brand Finance plc, Twickenham
Anastasia Tennant Christie's
Jim Calvert DoveBid Valuation Services, London
Travis Taylor Gravitas Partners,London
Vicki Carr Osborne Clarke Solicitors
James Palmer Duff & Phelps Ltd, London
Lindsay Pentelow Mazars, Bedford

Executive Summary

1. Introductions and Apologies

  • Apologies read

2. Minutes of Last Meeting

  • Minutes agreed.

3. Revenue/Customs merger - HMRC

  • HMRC has 36 Business Units split into 4 interrelated groups
  • SV is a member of Product and Process Groups

4. SV Performance & Workloads

  • Customer service targets met but SV will continue to look for ways to improve efficiency.
  • Staffing levels appropriate for current workloads.

5. Chattels Valuation Issues

  • Valuation of Jointly Owned Chattels in Northern Ireland and Scotland
  • Impact of Subsequent Sales on Chattels Valuations

6. April 2006 Pension Changes

  • Changes to the tax regime for pensions, which will take effect from 6 April 2006, may necessitate the valuation of unquoted shares comprised in some pension funds.
  • No special valuation issues but SV to liaise with Pensions colleagues to ensure that the necessary processes are in position to deal with any requests.

7. ITEPA/Spinouts

  • Practitioners regard the EI PTVC system as a useful service.
  • Representations regarding the EI PTVC system should be made to Tom Rollinson at ESSU.
  • Adjustment to actual market value to arrive at unrestricted market value.
  • Feedback as to legislative problems encountered in relation to Spinouts should be sent to Susan New at ESSU.

8. Any Other Business

  • None

9. Date of Next Meeting & Venue

  • This was provisionally booked for April/May 2006 with the venue to be confirmed.
    HMRC Shares Valuation Fiscal Forum 10 October 2005

Minutes

The meeting was held at the Chartered Institute of Taxation, 12 Upper Belgrave Street, London and was chaired by Marie-Claire Uhart and Mark Evans.

1. Introductions and Apologies

  • Introductions made and apologies noted.

2. Minutes of the Last Meeting

  • Minutes agreed.

3. Revenue /Customs merger - HMRC

  • Marie-Claire Uhart said that HMRC will evolve gradually as the various functions of Customs and the Revenue are brought together. Much has been done already and the new structure is taking shape with the 36 new Business Units now in place.
  • Each Business Unit fits into one of 4 interrelated groups. These are Operations, Corporate Functions, Product & Process Groups and Customer Units. SV is a member of Product & Process Groups.

4. SV Performance & Workloads

  • Marie-Claire Uhart confirmed that SV were meeting published customer service targets and post targets. The average settlement time overall was 4.5 months per case. The average settlement time for cases closed on risk assessment was 2.8 months and for cases closed following negotiations it was 9.5 months.
  • Marie-Claire Uhart confirmed that SV is staffed appropriately given current workloads. She added that SV was always looking to improve efficiency.

5. Chattels Valuation Issues

  • Valuation of Jointly Owned Chattels in Northern Ireland and Scotland
    • Mike Fowler

At the last Fiscal Forum Fred Cook was kind enough to read a statement I prepared explaining the approach adopted by SV in joint ownership situations. That statement was fine for England and Wales but Edward Manisty raised a point about the legal rights of joint owners in Northern Ireland and Scotland and it was left that SV would cover that at this meeting.

Since then I have consulted with Revenue Solicitors and I can offer the following clarification of our approach to joint ownership valuation issues in Northern Ireland and Scotland

Northern Ireland

In Northern Ireland I am advised that there is no legal protection for co-owners. This is different to the situation in England where, under s.188 Law and Property Act 1925, owners of a 50% stake or more can apply to the court for an order of division or otherwise. Because of this it could conceivably be argued that discounts where the owner has a 50% or greater interest should be higher than those applied in England. However, in the 80 years since it was enacted, it would appear that no one has ever applied to the court for a division under s.188. As such the protection offered by s.188 looks to have no practical use and we see no reason for there to be a material difference between the discounts used in England/Wales and Northern Ireland.

Scotland

The situation is rather different in Scotland. There I am advised that any co-owner can apply to the court for a division or sale. It could therefore be argued that no discount should apply. However our view is that a small discount will still be appropriate to compensate for the hassle of joint ownership. This is unlikely to be greater than 10% although, as ever, every case will be treated on its own merits.

Other Points

Questions have also been asked about our approach when owners live under one jurisdiction but the chattel(s) are located under another. Such thoughts open the door to an unlimited range of possibilities but difficulties have not arisen so far and no such cases have ever been brought to my attention. Revenue Solicitors advise me that that the location of the chattel is likely to be important but we are not aware of any test cases. In the circumstances we feel unable to offer specific guidance and can say little more than every case will be treated on its own merits.

  • Impact of Subsequent Sales on Chattels Valuations

Edward Manisty has also asked me to include the admissability of subsequent sales, with respect to chattels valuations, on the agenda. Particular mention has been made of problems that can arise where there have been sales within a year or two of the valuation date. I shall set out our views on this subject and then you can contribute any thoughts you may have.

It is worth starting by noting that there is often a need to value chattels for Inheritance Tax purposes and the items in question are frequently sold at auction shortly after death. Subsequent sale prices therefore feature much more frequently than with unquoted share valuations.

In such circumstances executors usually declare the sale price in the death return and in the vast majority of cases this is accepted without question. Difficulties only arise when the sale price, for whatever reason, is not agreed to give a reasonable indication of the market value of the item at the valuation date.

Our view is that it is in everyone’s interest to adopt a practical approach. A valuation of a chattel will draw on all contemporaneous comparable sales information and if the chattel in question is sold shortly after the valuation date we would expect the sale price to effectively be a test of the validity of the valuation. If a chattel is valued at £1,000 one week and then sold for £1m the following week Practitioners can expect HMRC to raise a few questions. It may be that there are very good reasons for the striking difference – or it may just be that the valuer got it wrong. Clearly the more distant the sale the more variables will enter the equation and the less significant the sale price will become.

Edward Manisty said that he considered SV had been inconsistent in the use of subsequent sale price information. Mike Fowler noted his concerns and mentioned that his team had recently met to discuss the issue to ensure that a consistent approach was being taken in this area.

Steve Gridley clarified the difference between hindsight & the evidence of subsequent sales and referred to the Stenhouse decision.

6. April 2006 Pension Changes

  • Pension Tax Simplification introduces a radical new tax regime for pensions that will take effect from 6 April 2006. Simplification will sweep away the eight existing tax regimes and replace them with a single universal regime for tax-privileged pension savings.
  • Mark Evans said that he understood one of the key elements of the simplified regime would be a single lifetime allowance on the amount of pension savings that can benefit from tax relief. The value of the lifetime allowance would be set at £1.5m on introduction. Mark Evans added that transitional arrangements would protect pension rights built up before 6 April 2006. There would also be protection for rights to lump sum payments that exist at 6 April 2006. Primary Protection would be given to the value of the pre-April 2006 pension rights and benefits in excess of £1.5 million whilst Enhanced Protection would be available to individuals who cease active membership of approved pension schemes by 6 April 2006.
  • Mark Evans said that in some cases it would be necessary to determine the value of a particular pension fund for the purposes of the single lifetime allowance arrangements. Mark Evans asked whether SV would be involved in the valuation of unquoted shares in those cases where unquoted shares form part of a pension fund.
  • Marie-Claire Uhart said that whilst she was not aware that there were any special valuation issues in point, she would be liaising with colleagues from Pensions as part of the normal process of policy delivery. Marie-Claire Uhart confirmed that discussions with colleagues from Pension Schemes would include consideration of the appropriate definition of market value to be applied, the number of valuations likely to be received and the processes required to deal with any such requests efficiently and effectively.
  • Marie-Claire Uhart noted that if those present have further comments they should direct them to Steve Gamble of SV.

7. ITEPA/Spinouts

  • Tom Rollinson asked whether practitioners found the existing Employment Income Post Transaction Valuation Check system useful and cost effective.
  • Steve Gridley said that EI PTVC cases formed a small percentage of SV work but took up a disproportionate high amount of time due to their complexity. He added that most valuations were not amended and of those that were, the tax at issue was often small.
  • Tim Harding said that many clients wanted the certainty of an agreed valuation. He added that it was preferable to undertake a potentially complex valuation using current information that is fresh in the minds of all concerned rather than wait until the future and rely on historic details. Mark Evans agreed but he acknowledged the need for SV to review areas of work that are not necessarily cost effective. The discussion covered the possibility that the service might be limited to key cases, for example by setting a minimum amount of tax considered to be at stake. The consensus of opinion was that the PTVC system was a good service.
  • Marie-Claire Uhart confirmed that representations regarding the EI PTVC system should be made to Tom Rollinson at ESSU.
  • A discussion took place regarding the restricted and unrestricted value of shares for EMI purposes. In particular, problems have arisen when the request for a valuation had not mentioned the need for an unrestricted value for limit purposes. Steve Gridley explained that the problem could be avoided if form Val231 was used when applying for a valuation. There was also a discussion regarding transfer restrictions that covered the same ground as the last meeting.
  • Tim Rollinson said that it was hoped to cover the definition of restrictions in the forthcoming Employee Related Securities Manual.
  • Tim Rollinson informed practitioners that his ESSU colleague Susan New would like to receive any feedback regarding problems encountered in relation to Spinouts.

8. Any Other Business

  • No other business.

9. Date of Next Meeting & Venue

  • Marie-Claire Uhart suggested that the Fiscal Forum be held twice yearly. Mark Evans confirmed that this would be more useful to practitioners than a yearly meeting. He added that it would be helpful if the next meeting could take place after the Spring Budget 2006.
  • Diane Elliott said that WJB Chiltern could provide a larger venue for the meeting, which would allow more practitioners to attend. The next meeting was provisionally booked for April/May 2006.