Statutes (Section 150 CGTA 1979 and Section 160 IHTA 1984) require holdings of unquoted shares be valued on the basis of the price they would get on the open market, with no buyers excluded. Since most shares are sold under the conditions of a restricted market as defined by the articles of the association, Inland Revenue will ignore evidence of the transaction details. Inland Revenue Shares Valuation Division does emphasize valuing minority holdings in profit-making companies by reference to their earnings and applying multiples derived from the experience of the stock market since the quoted market does represent the open market. However, a dividend yield-based approach for valuing a minority provides a more solid valuation because a dividend represents an ascertainable return to the hypothetical purchaser. In property and investment companies, the basis for valuing holdings is asset backing. Although many dispute possibilities exist, the Shares Valuation Division continues to give a fair hearing to valuation arguments.
Full text: Accountancy, Jul 1988
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