Share valuation

Share valuation

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In 2004, my employer issued me with 500 shares @ £1 each. A valuer has told me that the articles are written in such a way that the commercial value will never be more than £1 each. I am thinking of passing the shares to my brother. Their commercial value ignoring the restrictions is about £60000. Can I adopt £500 as the tax market value on my disposal?
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By kenmoody
02nd Sep 2008 16:23

It seems somewhat strange ...
... that the difference between 'commercial' value and market value can be so great. Are these by any chance shares subject to pre-emption rights whereby you can only offer them for sale at par? You don't say why you are thinking of transferring to your brother but have you checked that you are allowed to do that under the company's articles? If the shares are so heavility restricted it seems somewhat unlikely that you would be allowed to transfer, particulalry if the shares were just issued in order to pay dvidends instead of remuneration, since unless your brother works for the company he is not doing anything to 'earn' those dividends.

I don't know if your valuer contact specialises in fiscal valuations but some restrictions are given fairly short shrift by HMRC - for example I don't know that 'bad leaver' restrictions have as much impact as you might expect. This is because the vendor and purchaser are hypothetical and therefore the bad leaver stands to lose out but the remaining shareholders would gain. However because the vendor and purchaser are hypothetical you don't know which it will be so, arguably, the restriction is neutral. Don't ask me because I'm not a share valuer.

One other thing though is that the shares are employment related securities. Your brother is an 'associated' person and so the shares may remain employment related as regards your employment. They can' be ERS vis a vis your brother anyway unless he is also an employee. If a 'chargeable event' arises in connection with the shares you may still be taxable for example if the idea is that your brother may be able to realise the commercial value at some point, a tax charge may arise on you. Otherwise, why are you giving them to him.

As you will see this gets very complex. From a CGT point of view open market value applies, but as you can see there is quite a bit more to it.

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