- May 12, 2014
- Posted by: Josiah Hincks Solicitors
- Category: Business Law Updates
A businessman who sought Income Tax relief after gifting shares to two charities may have scored a moral victory – but is still facing a substantial back-tax demand after a tribunal ruled that the shares were worth only about a third of the value he had put upon them.
He had claimed relief under Section 431 of the Income Tax Act 2007 in respect of the gift of shares to the National Eczema Society and the Alzheimer’s Society. He claimed relief of £237,500 on the basis that each of the shares was worth £1. However, HM Revenue and Customs (HMRC) insisted that they were worth only 30p each and restricted his relief to £71,520.
The businessman argued that HMRC had offered no support for its lower valuation and pointed out that the shares were quoted on a recognised stock exchange at a mid-market price of £1 at the time of the gift. The £1-per-share valuation was also supported by independent evidence obtained at HMRC’s request.
HMRC submitted that the gift was part of a professionally promoted scheme to exploit a statutory loophole and generate tax losses. It was submitted that trading in the shares prior to the gift was no more than ‘window-dressing’ designed to lend credence to an unrealistic valuation.
However, the First-tier Tribunal (FTT) found that the businessman’s reasons for making the gift were irrelevant to the sole issue it had to decide – what price the shares might reasonably have been expected to fetch on the open market at the time. On the evidence, it could not in any event be said that tax avoidance was his sole motivation in benefiting the charities.
Nevertheless, after hearing expert valuation evidence, the FTT concluded that, as at the date of the gift, the shares were probably only worth 35p each. Allowing the businessman’s appeal on that basis, the FTT increased the amount of relief due to him from £71,520 to £83,125.