Tribunal Upholds Market Value Determination for Gifted Shares in Nicholas Bell & Ors v HMRC, Dismissing Abuse of Process Claim

Citation: [2023] UKFTT 989 (TC)
Judgment on

Introduction

In the First-tier Tribunal’s decision in Nicholas Bell & Ors v The Commissioners for HMRC [2023] UKFTT 989 (TC), critical legal principles surrounding the valuation of shares for tax relief purposes have been scrutinized. This case encapsulates the procedural approach of the Tribunal in confronting prolonged inquiry delays and delineates the intricate process of share valuation within the contours of income tax law. This article aims to provide a critical analysis of the legal principles applied and the Tribunal’s rationale behind its decision.

Key Facts

The contention in this case revolves around the market value of shares in Cityblock Plc and Strategic Retail Plc, gifted to charities by the appellants, and the consequent tax relief claimed. The core disagreement pertained to the market valuation of these shares on the Alternative Investment Market (AIM) at the time of gifting, which directly impacted the relief amount.

HMRC’s protracted investigation into the appellants’ tax returns culminated in closure notices that substantially revised the relief based on lower share valuations. The appellants challenged the revised assessments and contested the tax authority’s approach, alleging abuse of process due to the significant delay.

The Tribunal examined whether the delay precluded a fair hearing, ultimately determining it did not, and evaluated the parties’ arguments regarding the shares’ market value.

The case was structured around multiple legal tenets, pivotal among them being:

  1. Income Tax Relief on Gifted Shares: Under section 587B Income and Corporation Taxes Act 1988 (ICTA), relief for gifts of qualifying investments to charity is predicated upon the market value of shares at the gifting time.

  2. Market Value Determination: Sections 272 and 273 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) set out the statutory framework for determining an asset’s “market value”, entailing the price such assets might fetch on the open market.

  3. Valuation Principles: The case references principles established in prior jurisprudence such as Duke of Buccleuch v IRC [1967] and re Lynall [1972], stressing the sale’s hypothetical nature, the hypothetical vendor’s willingness, and the prudent purchaser’s informed decision-making.

  4. Information Availability: For valuation purposes, it is presumed that a prudent purchaser has all information reasonably required (section 273(3) TCGA 1992), as previously interpreted in Caton’s Administrators v Couch [1995].

The Tribunal adjudicated based on the balance of probabilities by examining the evidence, expert testimony, and applying these principles to ascertain the market value of the shares.

Outcomes

The Tribunal’s decision yielded several outcomes:

  1. Share Value Confirmation: For Cityblock shares, upon examining evidence from expert valuer Mr. Andrew Strickland and other factual matrices, the Tribunal agreed with HMRC’s closure notice valuation of 12p per share, dismissing the appellants’ challenge.

  2. Valuation Adjustment: Regarding Strategic Retail shares, the Tribunal determined their value to be lower than the HMRC’s assessed value, standing at 14.25p per share. Consequently, pursuant to section 50(7) Taxes Management Act 1970, the Tribunal directed an increase in the assessments for two appellants.

  3. Abuse of Process Claim Rejected: Applications to debar HMRC from defending the appeals due to delay were dismissed. The Tribunal concluded that despite the delay, there was no evidence to suggest that a fair hearing could not be conducted, as the necessary valuation information remained available.

Conclusion

The Tribunal’s decision in Nicholas Bell & Ors v The Commissioners for HMRC underscores the precise judicial application of tax law to complex valuation disputes in share gifting contexts. Applying statutory mandates and legal precedents, the Tribunal’s methodical analysis of share valuation, alongside its dismissal of the abuse of process due to procedural delay, emphasizes adherence to equitable legal process and the onus on appellants to demonstrate prejudice conclusively. The meticulous interpretation of legal tenets in this case serves as an instructive reference for the proper evaluation of shares for charitable gifting and illuminates the Tribunal’s circumspect approach to allegations of procedural impropriety within the realm of tax adjudication.