Shares Valuation Fiscal Forum: Memorandum

WJB Chiltern

MEMO

TO: Tim Jameson FROM: David Bowes

RE: Share Valuation Fiscal Forum - 24 July EXT. NO: 2225

DATE: 23 July 2001

Tim

Would you please be kind enough to raise on my behalf the following matters at the above forum tomorrow:

1 We had a recent case where there were negotiations of values for EMI scheme purposes. The officer in question was not at all unhelpful but unfortunately he habitually left for the day at around 3.15pm, as seemingly permitted under the Revenue flextime arrangement. He was not, therefore, always available for discussions at a time convenient for the either the client company or its advisors. As a result, the case took somewhat longer to finalise than it might otherwise have done.

Whilst there is no specific criticism being made of the particular officer, I am interested to know how the Revenue reconciles a situation such as this with a commitment to customer service. I would also be interested in learning whether other practitioners have had a similar experience.

2 Earlier in the year we were requested by a firm of Accountants to assist in certain negotiations they were having with Shares Valuation in connection with the sale of a minority holding of shares by a Self-Administered Pension Scheme to the trustees of another pension fund. The other salient points were as follows:

At no time, either before or after this intended transaction, would any individual control the company. All the shares in the company were held by the trustees of family discretionary trusts, the prospective pension fund, and one director who had 40% of the voting shares.

The auditors of the company were required to perform the valuations necessary to enable the sale to be completed, which they did on a minority basis. The assumption was that what was being sold was a minority holding which did not enhance the holdings of any existing shareholder. Because all the various shareholders were regarded as related, and because this was sale of shares approval of PSO to these arrangements had to be sought. They referred the matter to Shares Valuation for advice as to the value.

From the company's perspective, since under the articles of association the auditors were required to value the shares, the parties to this transaction felt they were entitled to rely upon the valuation produced by the auditors. We understand that there is no statutory basis of valuation for fiscal purposes in the circumstances such as these. Not withstanding that fact, Shares Valuation argued that since there was a connection between all those shareholding parties, and that any value would be staying within the family, it was the family that would benefit. The holding could not therefore be taken in isolation for valuation purposes.

Effectively, therefore, the specific transaction was ignored and on this basis the minority valuation proposed by the accountants was rejected. Shares Valuation sought to apply a whole company valuation with a very small discount, thereby placing a much higher value on the shares than the auditors sought to apply.

Would Shares Valuation please comment on the following:

• what is the rationale for and basis of the aggregation of all the family holdings, given that the value of the shares is presumably limited to what they could be expected to fetch if sold by the trustees in order to generate cash for the provision of pensions? It will be remembered that in most other fiscal valuation cases, save only for related property for IHT and certain CGT occasions, shares transferred are valued in isolation, regardless of any family connections between the actual shareholders;
• Shares Valuation's approach given the complete absence of any statutory basis for valuation in circumstances such as these;
• the position of the auditor in all this. The auditor is required under the articles of association in many companies to perform all valuations. Notwithstanding any statutory basis for doing so, and notwithstanding also a lack of experience and knowledge of non-fiscal case law within Shares Valuation Shares Valuations have apparently taken it upon themselves to set such auditor valuations aside;
• that refusal to agree the values proposed by Shares Valuation would most certainly mean that the scheme would not be approved by PSO.