Company Share Valuation Methodology – Green v HMRC

Company share valuations can be a notoriously tricky area and the legislation offers little guidance as to appropriate methods of arriving at open market valuations.  Case law has often formed the basis of such considerations, but there are relatively few cases on the subject.

A recent case was heard at the First-tier Tribunal (Green v HMRC; TC03525) which may provide some further clarity to taxpayers as it considered a number of relevant factors for valuing shares.

Background and Facts

A taxpayer made gifts to two charities of 118,750 shares each in the company in question.  The company was called Chartersea Limited and was formed as part of a deal to acquire an existing trading company, Warwick Development (North West) Limited (WDL).  WDL was a manufacturer and supplier of uPVC windows, doors, sealed glazed units and conservatories.

Following Chartersea’s acquisition of WDL the shares were listed on the Official List of the Channel Islands Stock Exchange (“CISX”), which is a recognized stock exchange for the purposes of the relevant tax legislation.

The gift of shares could therefore qualify for income tax relief, and Mr Green claimed relief of £237,500 under ITA 2007, s 431, based on a market value of £1 a share.

Mr Green argued that trades carried out on the day of the gift to charity, with a mid-point of £1 a share, showed the correct market value to use.

HMRC became aware that the trades were carried out by persons who were likely associated with the other parties involved and was not therefore indicative of the open market value.  Whilst the shares were listed on a recognised stock exchange, the legislation on valuation only included reference to The Stock Exchange Daily Official List as being indicative of market value.  As such, the open market value had to be ascertained.

They restricted the amount of relief to £71,250, valuing the shares at 30p each.

The taxpayer appealed.

Tribunal Findings

Both parties at the First-tier Tribunal presented expert share-valuation reports. HMRC’s expert used a discounted cash flow valuation of the company, which the Tribunal noted was rarely used in practical share valuations.  He also used revenue and earnings projections that would not have been available to the open market.  His valuation found that the shares were worth between 25p and 30p

The Tribunal followed previous case law (Lynall deceased: Lynall & another v CIR [1972]) confirming that only information available to the open market should be used in such valuations.  In our experience, HMRC have recently been trying to side-step this case law and as such the Tribunal’s stance may be helpful.

The taxpayer’s report used a price/earnings (P/E) technique to value the shares, although it was noted that there were numerous confusing contradictory terms within the report. It concluded that the shares’ value was between 88p and 93p.

The tribunal found that the taxpayer’s valuation method was more appropriate, however the P/E multiples used had overvalued the shares.  Instead they used HMRC’s expert’s secondary value which was based on a lower P/E ratio, giving a value of 35p a share, resulting in relief of £83,125.


The case is perhaps most interesting in confirming the previous case law that only information available to the open market should be taken into account when valuing minority holdings.  It also highlights the difficulties in arriving at open market valuations which are always likely to be subjective in their nature.

Eaves and Co have extensive experience of share valuations and negotiations with HMRC on valuation, in particular for tax transactions such as EMI schemes.  If you would like any more information please feel free to get in contact with us.