How Good a Guide is an AIM Listing to a Share’s Open Market Value?

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Most investors would agree that the price at which shares are listed on an accredited investment exchange is as reliable a guide as any to their open market value. A tax dispute concerning a gift of shares to charity, however, showed that such an assumption may not always be correct.

A man received 190,000 shares in a recently formed company as a gift from a friend before gifting them on to a children’s charity. Based on the price attributed to the shares on AIM, he asserted that they were, on the date of the gift, worth 42.5 pence each, giving a total value for his holding of £80,750.

Claiming relief under Section 587B of the Income and Corporation Taxes Act 1988, he sought to set that sum off against his Income Tax liability for the relevant year. HM Revenue and Customs (HMRC), however, took the view that the shares were, on the relevant date, worth less than a quarter of the sum claimed and reduced his tax credit accordingly.

Challenging that decision, the man asserted that the AIM listing was potent evidence which supported his assessment of the shares’ market value. There was no evidence of price manipulation and, as a private individual, he had relied on publicly available information to arrive at a correct valuation of the shares for tax purposes. The company was still listed on AIM and had apparently done well.

Ruling on the matter, the First-tier Tribunal (FTT) acknowledged that the price at which a share is listed on AIM may be relevant to a valuation. However, there had only been a limited number of trades in the company’s shares prior to the gift. The price at which such modest volumes of shares had been traded could not, without more, be viewed as a reliable proxy for the open market value of those shares.

The FTT preferred expert evidence presented by HMRC as to the price that a hypothetical prudent investor, armed with relevant information, would realistically have paid for the shares on the relevant date. On that basis, the FTT found that the shares were at the time worth 9.42 pence each and that the man’s tax credit should thus be limited to £17,898.