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HMRC internal manual

Shares and Assets Valuation Manual

The Statutory Open Market: Case Law - evidence of transactions and agreements

The issue of the extent to which any transactions in the shares of a particular company or previous agreements of their value with HMRC may be taken into account in fixing a fiscal valuation was raised in Inland Revenue Commissioners v Stenhouse’s Trustees [1992] STC 103. This case was an appeal by the Revenue against a decision of the Special Commissioners that appeared to limit the extent to which cross-examination would be permitted, or evidence allowed to be led as to actual transactions in, or agreements relating to the value of, shares in the two companies concerned.

Lord Coulsfield pointed to the general rule of law that evidence which is relevant to the issue in the case is admissible unless it is excluded by some peremptory rule of law. Evidence is relevant if it is in some way logically connected with the matters in dispute or if it is consistent or inconsistent with, or gives rise to a logical inference regarding, the facts in issue. No question of a peremptory rule of law of evidence had been raised by the parties and the question was argued as one of relevance of evidence. The Crown’s contention was that evidence of agreements as to the open market value of shares in the companies and evidence of actual transactions in those shares must be relevant to the issue in the present dispute, even if such evidence might not be determinative or even of very great weight. The taxpayers argued that the issue between the parties was a hypothetical one, namely the price which would be paid in the open market for the shares under valuation, and that it followed from the nature of that issue that it was correct to take the approach of their witnesses as the primary approach; that regard could only be had to any transactions in the shares to the limited extent allowed by the Special Commissioner; and that evidence of agreements was not relevant at all.

Lord Coulsfield said that whether it is correct to start with the accounts of the companies and information available in the public domain is a question of fact and opinion, not one of law. He took a similar view on the question of whether any weight, and if so how much, is to be attached to evidence of transactions.

“Some of the transactions on which the Crown relies may be of no use: but there may be others which took place between parties who were genuinely trying to strike an open market value, and I do not see why such cases should simply be ignored. As I understand the position, the commissioner accepted, as the trustees also did in argument, that it is relevant to lead evidence of some transactions, albeit in a secondary role, as a check or sounding board for a conclusion reached on the basis of their preferred approach. Once that concession is made, it seems to me to be difficult to rule out ab ante the evidence which the Crown seeks to lead as necessarily inadmissible. Whether any particular part of that evidence is of assistance must, in my view, be a question of fact and circumstance.

The same line of argument is, in my view, applicable with regard to the agreements. The basis on which it is sought to lead the evidence is that it concerns cases in which the trustees did agree values as open market values. That evidence may not be of much strength as against other types of evidence, but I am unable to see that it is so valueless as not to be admissible at all”.

  Additional Guidance:SVM150000