The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
Valuations may be required for tax purposes in many different scenarios, including:
on grant of share options to employees in a tax-advantaged share scheme
where the taxpayer elects to ‘rebase’ assets to their value as at 31 March 1982
where assets are transferred between connected parties
where shares are acquired at undervalue by reason of someone’s employment
This guidance note is concerned with share valuations for tax purposes. For guidance on performing share valuations more widely, including for commercial purposes, and the risks involved for the practitioner , see the Professional valuations guidance note. For guidance on specific commercial valuation methods which may also be relevant to tax valuations, see the Measures and methods of valuation guidance note.
There are two relevant definitions in the Taxes Acts for the purpose of private company share valuations.
‘Market value’ is defined in TCGA 1992, s 272 and in IHTA 1984, s 160. It is essentially the amount which could be fetched on the open market between an arm’s length vendor and purchaser. This is covered in further detail below.
The definitions of market value in IHTA and TCGA are very similar and case law which is relevant for one is generally relevant for both. Principles established in relation to the definition of valuations for estate duty and capital transfer tax are also relevant for capital gains tax and inheritance tax as the definition was the same as it is for inheritance tax.
Most share valuations for capital gains tax, inheritance tax, and tax-advantaged shares schemes require the ‘market value’ to be determined. However, if a share transaction gives rise to earnings under ITEPA 2003, s 62, the relevant value is ‘money’s worth’.
‘Money’s worth’ is defined in ITEPA 2003, s 62(3). Money’s worth is essentially the amount a recipient of an asset could fetch for an asset, taking into account any restrictions which may be in place.
Money’s worth and market value could on occasion be substantially different.
For fiscal valuations, market value
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