Save content
Have you found this content useful? Use the button above to save it to your profile.
A couple exchanging a gift | AccountingWEB | Shares gifted to charity and relief claimed were overvalued

Shares gifted to charity were overvalued


The valuation of shares donated to charity should be based on all available information, not just the AIM quoted share price, particularly in cases where the shares are relatively illiquid.

15th Dec 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

In this, the season of goodwill, we are reminded of St Francis of Assisi's quote: "For it is in giving that we receive." It was in giving 190,000 AIM-listed shares to charity that Mr Kay hoped to receive £81k of tax relief, but HMRC giveth and HMRC taketh away. Some 13 years after opening an initial enquiry, the tax authority issued a closure notice which reduced the relief from £80,750 to £17,936.

The 13-year delay echoes HMRC's conduct in the case of Andrew Nuttall (TC08517) where the FTT decided that a 12-year wait for the share valuation was shocking but not an abuse of process.

Kay made the gift of shares in a company called Access Intelligence plc (Access Intelligence) to the Lord’s Taverners, a charity which supports underprivileged children through sports, on 2 April 2004. He had himself been given the shares the previous day (by a friend who had sold their interest in another company).

At the time of Kay's gift to the charity, section 587B of the Income and Corporation Taxes Act 1988 (‘ICTA 1988’) provided tax relief in respect of gifts of qualifying investments to charities. Where the whole of the beneficial interest in the qualifying investment was given to a charity, relief was available as a deduction for income tax purposes of an amount equal to the market value of the qualifying investment at the time of disposal.

That the Access Intelligence shares met the “qualifying investment” condition was not disputed. It was the "market value" of the shares at the time of the gift that caused controversy and sparked the appeal to the first tier tribunal (FTT).

Kay had claimed tax relief on his 2003-04 self assessment tax return using a valuation of 42.5p per share, being the quoted AIM share price on the date of the gift. HMRC argued that other factors should be considered, not just the quoted share price, and reduced the valuation to 9.44p per share. Kay appealed.

What is market value?

According to section 272 TCGA 1992 “market value” in relation to any assets means “the price which those assets might reasonably be expected to fetch on a sale in the open market”.

That price, according to the legislation, should be based on prices quoted in the Stock Exchange Daily Official List except where special circumstances prevent the quoted prices from being a proper measure of market value.

Looking to case law, the FTT referred to Netley v HMRC [2017] UKFTT 442 (TC) (Netley) in which the judge held that there was insufficient liquidity in the market for the company's shares for the listed price to be taken as a proper measure of market value. It was also noted in Netley that “AIM shares are unlisted shares not in the Official List” so AIM quoted prices were not a reliable open market valuation.

The Access Intelligence shares were, according to HMRC, similarly illiquid as evidenced by the very limited extent of trading. Based on reports from Daniel Ryan of Berkeley Research Group and Richard Lamb of HMRC’s Shares and Assets Valuation department, HMRC concluded that the AIM price was not a reliable indicator of the value of the shares.

Expert opinion

The tribunal heard evidence from Clare Rooney, HMRC senior officer and a qualified associate member of the Royal Institution of Chartered Surveyors. Her analysis produced a 64-page report, in which she considered the background and trading activity of Access Intelligence; her interpretation of the legislation; and various alternative valuation methods.

Rooney opined, having “considered the information that would have been available to an uninfluential minority purchaser as at the valuation date” and “taken the view that this would be restricted to published information only”, that the Access Intelligence shares had a market value of just 9.42p on the disposal date.  

Kay contended that he “thought AIM was a recognised stock exchange and he had used what was  available to him at the time to arrive at the correct value”.

However, Rooney felt that a prudent purchaser would have considered other publicly available information including Companies House data, prospectus details and internet searches, as well as the AIM listings.

Indeed she referred to such sources for her own valuation and noted that although the prospectus showed a share price of 37p, the related transactions were not at arm's length. She considered the shares to be “thinly traded” such that the AIM listing was not a reliable measure.


The FTT, although understanding of Kay's position, gave weight to Rooney's expert evidence.

Referring to Netley and Findlay's Trustees v CIR (1938), the judge stated: "We must, however, consider the hypothetical purchaser to be a reasonably prudent purchaser who has informed himself as to all relevant facts.”

Based on the detailed analysis and explanations in Rooney's report, the judge found that the value of the Access Intelligence shares was not the 42.5p claimed by Kay, nor even the 9.44p given by HMRC. The correct valuation according to the FTT was the 9.42p determined by Rooney.

A win for HMRC and a result that is hard to argue with on the facts. But one can't help but spare a thought for the poor taxpayer whose act of charity ultimately led to a tribunal outcome where he was even worse off than had he accepted the initial closure notice!

Replies (14)

Please login or register to join the discussion.

the sea otter
By memyself-eye
15th Dec 2023 13:53

How is a chartered surveyor qualified to value equities where there is a marketplace (AIM) and therefore a price.
I own AIM shares. Why would I not be able to rely on the daily price of those shares as a 'guide' to their value?
Would HMRC up the valuation of a company whose shares trade at a price below the sum of the company's net assets. Would they allow a 'customer' to? (don't answer that)
Or, in this case, were the shares not actually being traded day to day or week to week (maybe suspended).
Also, what does 'insufficient liquidity' mean? Many AIM companies are illiquid - that doesn't mean their share price doesn't reflect fair value at the time.

I find this bizarre.....

Thanks (7)
Replying to memyself-eye:
By More unearned luck
17th Dec 2023 15:28

Perhaps the key to why Mr Kay lost so comprehensively is given in para 20 of the decision and by the fact that he represented himself.

It would be interesting to know on what value his friend's capital gain on the gift to him was based. If it was higher than 9.42p then Mr Kay should have had the friend give evidence to that effect. The absence of such evidence is telling.

Also, what did the Lord's Taverners do with shares? If they sold them straightaway, what did they sell them for? More evidence Mr Kay could probably have adduced; but perhaps this evidence didn't help his case, either.

Every case depends on its facts and a dearth of facts from the party with the burden of proof leads to results such as this.

Thanks (2)
Replying to memyself-eye:
By SafeAsHouses
19th Dec 2023 14:26

Agree. Are we expected to believe that if he had sold the shares into the market that day, it was so illiquid that it would result in approximately *80%* slippage?! Doesn't seem likely to me.

Thanks (0)
By richards1
18th Dec 2023 09:40

What do you mean poor taxpayer. He was claiming relief on his taxable income by way of gift aid.
A post further down by "more unearned luck" makes a number of very pertinent points.

Thanks (0)
By Ian McTernan CTA
18th Dec 2023 09:50

A lay person wouldn't get produced a 64 page report before buying a small holding of shares on AIM- the cost would be prohibitive for a start! And why is a chartered surveyor producing a valuation report....

The taxpayer should have got representation and evidence to support his claimed valuation, especially around the disposal by the person who gave them to him.

One thing to note in cases like these: list a few of shares for sale and note what price they sell for: it's very hard to argue with actual transactions rather than hypothetical values and is much more reliable than quoted prices on AIM.

He could even have asked the company to provide a transaction list for the last 12 months showing the values of bought and sold.

Thanks (3)
paddle steamer
18th Dec 2023 10:55

Have not read report (short of time this week) but was this a loss creation scheme?

About 2000/2001 we made a large profit on a development and were looking at tax mitigation, one of the arrangements offered was a scheme involving gifting of AIM shares to create a loss. I was not happy with the concept and body swerved it but the mechanics do sound slightly similar.

Thanks (1)
By unclejoe
18th Dec 2023 12:32

There has to be a lot more going on here than we read in this report. But just because a company is a listed public company does not mean that the quoted price is a real market price - it can be highly manipulated. An example is the Neil Woodford funds which had to maintain a set percentage investments in quoted companies. In Woodfords case he got around this by floating one of his private companies at (arguably) an inflated price. Since he held 100% of the equity, and none actually traded this maintained a fund NAV higher than might have been justified and also meant that he had maintained his required percentage in listed companies.

In the case of Access Intelligence the record shows that the transaction was not long after the company floated on AIM. In fact virtually no shares traded for nearly a year. When some meaningful trades of less than 10,000 shares were done some 5 months after this gift transaction, the share price plummeted 75%. There is no way that if 190,000 shares were offered to the market that they would have achieved the stated price! The market was wholly false. Well done to HMRC for uncovering this. If fraud was suspected I would like to see that pursued as well.

Thanks (2)
Replying to unclejoe:
paddle steamer
18th Dec 2023 14:16

How can a company be listed but be 100% owned by someone, I though there had to be a minimum free float of shares to get a listing? (Even on AIM which has few rules)

I can ask my other half as she used to know all this sort of stuff, having qualified as a Registered Rep in the 90s, but that was a long time ago now and she stopped being an analyst about 20 years ago so will by now be very out of date.

Thanks (0)
Replying to unclejoe:
By richard thomas
20th Dec 2023 09:42

There almost certainly was. Some commenters here seem to be unaware that this is but the latest in a long line of similar cases. I have had a close involvement with one such case when I was a member of the FTT sitting with Malcolm Gammie as the judge. The case is Nicholas Green v HMRC [2014] UKFTT 396: it goes more into the "lot more" that was indeed going on. But see [118] in particular for mention of DOTAS and also the reason why avoidance was not relevant to the outcome: hence the decision in this case being determined purely on the MV of the AIM-listed shares.

Thanks (0)
By Twickers Call
18th Dec 2023 12:34

This is a very concerned matter. There would be a negative impact on charity donations. Share values go up and down. Market value is usually obtained from the London Stock Market.
If the value at the time of the gift was as listed in the stock market, the doner should have been allowed the relief. (Provided I got the facts right).

Thanks (0)
By bobsto12
18th Dec 2023 14:04

Sounds like an absurd difference between her figures and the quoted price that presumably bears some relationship to a price buyers and sellers are prepared to transact at.
Chartered surveyors value buildings dont they? A rather different field.

Thanks (0)
By AWebbie
18th Dec 2023 14:14

"I'm sure the Chartered Surveyor knew what she was doing". But the shares are still traded on AIM ( and have never been as low as 9p so far as I can see. Some traded on Monday for 54p/

Thanks (2)
By Justin Bryant
18th Dec 2023 16:10

Looks like another bonkers FTT judgment unless there are any share valuation experts here who can say it makes sense. That said, it could be a simple,matter of there being no proper cross-examination of HMRC's expert valuer. See:

Thanks (0)
Replying to Justin Bryant:
the sea otter
By memyself-eye
19th Dec 2023 12:43

There are no 'experts' where equity valuations are concerned- merely a price at which trades take place. That price sets a value agreeable to buyers and sellers which may or may not reflect the true worth of a company (which is opinion only). However, it's the only impartial measure available, and it's available to all who care to look, so fully disclosed and therefore should be undisputed - especially on a market open to allcomers.
The fact the company trades on AIM and not the main market should be irrelevant.
HMRC will be revaluing steak and sausages at Smithfield market next!

Thanks (1)