Valuations for UK Tax purposes
The sale or transfer of private company shares may give rise to a capital gains tax or inheritance tax liability requiring the need for valuations for UK tax purposes. If so, any tax payable may depend on the open market value of the shares at the date of the transaction rather than the transfer price. For shares held continuously since March 1982, their re-based value at the capital gains tax base date of 31 March 1982 may also have to be considered in order to determine the chargeable gain. Where an investment in unquoted shares has become worthless, a negligible value claim under s.24 TCGA 1992 may create a loss which can be used to reduce chargeable gains on other investments or assets.
Tax-related valuations are the responsibility of a specialist office of HMRC, Shares & Assets Valuation (“SAV”), which decides whether or not the value proposed by a taxpayer is acceptable. Except in very limited circumstances, SAV will not pre-review valuations before a disposal takes place so it is important to have a reliable valuation if unexpected tax consequences are to be avoided.
Problems can also arise on the incorporation of an existing sole-trader or partnership business, where the value placed on goodwill acquired by the new company is likely to be scrutinized closely by SAV. If SAV considers the value placed on goodwill was excessive, entrepreneur’s relief may not be allowed on the full amount and HMRC may treat payments from a director’s account as a distribution rather than a loan repayment.
This may be a particular issue in the case of so-called Trade Related Properties, such as public houses, hotels, restaurants, nightclubs, theatres, cinemas, casinos, care homes and petrol stations. In these cases SAV may claim that substantially all of any goodwill claimed on incorporation is not goodwill at all and in fact relates to the trading potential of a business operating from specially adapted premises.
Parmentier Arthur has the experience of hundreds of such cases to draw upon and can provide expert advice for valuations for UK tax purposes in connection with:
- Capital Gains Tax
- Inheritance Tax
- Corporation Tax
- Employment-related securities
- Goodwill value on incorporation
- Negligible value claims
We also have considerable experience of successfully negotiating and agreeing share values with SAV on behalf of clients.
HOW WE HELP
Need to settle a dispute over the value of a shareholding?
How much is your company worth?
Selling a minority shareholding. What is it worth?
Incorporating your sole trader business? What is the goodwill worth and what value will HMRC accept for tax purposes?
Making awards under a Management Incentive Plan? What is the value of the MIP shares for tax purposes?
Negotiations with HMRC at an impasse? Need a new perspective?
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Possibly one of the most neglected and common areas of Pay As You Earn (“PAYE”) failure is where shares are sold by employees or ex-employees – disposals of employment-related shares.
Where not all conditions of the MoU are satisfied – is it possible to put some reliance on the principles of the MoU? If the ‘spirit’ of the MoU is satisfied, can management rely on it?
Following the introduction of the employment-related securities legislation in the Finance Act 2003, there was significant uncertainty in relation to the tax implications for management acquiring shares in venture capital (“VC”) and private equity (“PE”) backed companies.