SVM113130 - The Statutory Open Market: Case Law - Valuation decisions reached in particular cases
Attorney General of Ceylon v Mackie and Another Privy Council [1952] 2 All ER 775, 31 ATC 435, [1952] TR 431, 45 R&IT 793
This case involved a valuation for Ceylon Estate Duty on 7 September 1940 of shares in a company incorporated in Ceylon in 1922. The capital of the company consisted of 19,800 eight per cent cumulative preference shares and five thousand management shares. The deceased died possessed of 9,201 preference shares and all the management shares.
This case is usually taken to be of some note because it was held that the price to be decided was the largest price that could be obtained for the combined holding of management and preference shares. This was on the basis that the subject of valuation was the estate passing on the death. This case does not apply to capital gains tax valuations: see Stephen Marks v HMRC [2011] UKFTT 221 (TC) where the judge said:
“The cases on death duties under which related assets can be grouped together in order to obtain a better price for both (such as the combination of the deceased’s management shares and voting preference shares so as to give voting control in Attorney-General of Ceylon v Mackie [1952] 2 All ER 775), which was relied on by Mr Morgan, in our view have no application to capital gains tax. While death duties are computed on the value of the estate as a whole, for which one has to split the assets into saleable parcels, capital gains tax is computed on the disposal of each asset separately”.
Recent Litigation
As stated at SVM113030 decisions in particular decided cases cannot be taken as authority that a particular rate of return or discount of some kind should be applied. Each case is decided on its own facts and on the basis of the expert opinion received at the time. The cases do not provide set rules of thumb which can be applied elsewhere without close study of any decided case and research into and serious consideration of the particular circumstances that face you as a valuer. In short, share valuation requires work on each case.
The decisions in each of the cases listed below need to be read carefully before any of the headlines listed below are given wider application:
1. Couch (Inspector of Taxes) v Administrators of the Estate of Caton (deceased)
2. Clark v Green
3. Denekamp v Pearce
4. Marks v Sherred (Inspector of Taxes) SpC 418, [2004] STC (SCD) 362
5. Executors of MacArthur (deceased) v Revenue and Customs Commissioners
6. S Patrick Erdal v HMRC (2011) UKFTT 87 (TC) TC 00964
7. Stephen Marks v HMRC [2011] UKFTT 221 (TC)
8. Robert Brown v Revenue and Customs [2013] UKFTT 740
1. Couch (Inspector of Taxes) v Administrators of the Estate of Caton (deceased)
Yorkshire Switchgear Group Limited
- Valuation of a 14.2% shareholding, the largest single holding
- Valuation date: 7 September 1987
- Company activity: manufacture of high voltage current breakers
- Estimated company value discounted by 50%
- Based on prospective outlay of £1 million a prudent purchaser would consult advisers who would advise him that information about a possible exit was important; such a purchaser could, therefore, reasonably require information about approaches for sale, about future prospects of sale, and about up-to-date information from the management accounts and budget forecasts.
2. Clark v Green
Yorkshire Switchgear Group Limited
- Valuation of a 3.16% holding
- Valuation date: 28 September 1987
- Company activity: manufacture of high voltage current breakers
- Discount of 70% applied to the comparable quoted PER
- No details of any proposals to sell the company would be available to the purchaser of this smaller holding
- Company profitable and paying well-covered dividends
3. Denekamp v Pearce
- Valuation of a 24% shareholding
- Valuation date: 31 March 1982
- Activity - wholesale cash and carry with subsidiaries in building and catering trades
- 55% discount to the entire company value on the basis that a sale of the company was the most likely outcome
4. Marks v Sherred (Inspector of Taxes) SpC 418, [2004] STC (SCD) 362
- Valuation of a 66% shareholding
- Valuation date: 31 March 1982
- Activity: consumer electronics
- Actual figures for year ended 31 March 1982 were the best available guide to what the hypothetical purchaser, making the proper enquiries, would have been able to discover from the available information.
- Adjustment made for high level of directors’ remuneration and other factors
- PE of 10 taken by reference to a most directly quoted comparable company of 11
- No discount for size of holding
5. Executors of MacArthur (deceased) v Revenue and Customs Commissioners
SpC 700; [2008] STC (SCD) 1100
- Valuation of shareholdings in moneybox companies
- Discounts as follows:
| Majority holdings | Percentage % | - |
|---|---|---|
| 69.9% | 12.5 | Based on observations in Goldstein v Levy Gee (a firm) [2003] All ER (D) 12 (Jul) |
| 51.1% | 12.5 | - |
| Minority holdings | % | - |
| 26.8% | 45.0 | - |
| 8.16% | 65.0 | - |
6. S Patrick Erdal v HMRC (2011) UKFTT 87 (TC) TC 00964
- Valuation of small minority holding in Tullis Russell Limited
- Valuation date: 31 March 1982
- Activity: paper manufacture and coating
- Profit taken on the basis that the hypothetical purchaser would have had available to him the information disclosed in the Minutes of a Board Meeting held on 5 May 1982, even though this was substantially higher than the actual profit for the year ended 31 March 1982.
- PE adopted higher than comparable quoted company in light of excellent prospects
- 40% discount for minority holding
7. Stephen Marks v HMRC [2011] UKFTT 221 (TC)
- Valuation of two group holding companies running the French Connection business
- Valuation date: 31 March 1982
- Activity: import and sale of ladies’ fashion
UK group company valued on basis of turnover x 0.3
- Turnover multiple selected because of uncertainty about accurate profit figures
- Turnover multiple was uplifted from a comparable quoted company figure
- Control premium of 30%
Overseas sales group
- Negative tangible assets
- Established turnover of nearly £1.5m and sales contacts with leading French retailers suggested a multiple of 0.1 giving a value of £150K for the wholesaling activities.
- USA licence arrangements valued at a level 5 years’ future commission discounted at 40% per annum = £293K
- £150K + £293K = £443K
8. Robert Brown v Revenue and Customs [2013] UKFTT 740
- Valuation of a 1,000 10p ordinary shares (less than 1%)
- Section 24(2) TCGA 1992 negligible value claim at 5 April 2006
- Company activity: Research and development - working on various projects to develop saleable intellectual property.
- Tribunal decision was the shares were of no value considered on normal methods of valuation.
- HMRC’s view was that the majority shareholder’s continued support of the company through a series of share subscriptions did not support a negligible value claim. The tribunal held this was not evidence the hypothetical purchaser of a minority shareholding would be willing to acquire shares in this company.
- Negligible value claim was accepted
Additional Guidance: SVM150000