Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Shares and Assets Valuation Manual

Information Standards: Introduction

The valuation of unlisted shares in the statutory open market [for example section 272 TCGA 1992] is made on the basis of a hypothetical sale in the open market between a hypothetical willing seller and a hypothetical willing buyer. The vendor is endowed only with the characteristic of owning the block of shares in question. He may or may not be a director of the company.

One of the factors which will determine the price a prudent prospective purchaser is prepared to pay is what he knows, or thinks he knows, about the company in question.


In the case of In re Holt [1953] 1 WLR 1488 and [1953] 2 All ER 1499 it was held that the investor in an unquoted company will be the exceptional kind of investor with some special reason for putting his money into that particular company and will require the fullest possible information about:

  • the past history of the company
  • the particular trade in which it is engaged
  • the future prospects of the company.

In other words, the directors would provide such information about the company’s trading position and prospects at the date of valuation which would have been disclosed to a reputable firm of accountants acting on behalf of the purchaser, in confidence.

This was the position until the matter was comprehensively reviewed in the leading case of Re Lynall [1971] 3 All ER 914 and [1972] AC 680 and [1971] 47 TC 375.



Very briefly, the facts are as follows.

  • On the death of Mrs Lynall on 21 May 1962, a valuation was necessary for Estate Duty purposes of her shareholding in a private company called Linread Ltd, which represented 28% of the share capital.
  • The company, which made screws and accessories for the motor industry, was successful with a record of profit growth. Dividends were covered by earnings between six and eight times.
  • The latest published accounts were for the year ending 31 July 1960 although draft accounts for the subsequent year were prepared but at the date of death had not been approved.
  • In addition to this information, there were also confidential documents relating to the possibilities of floating the company on the Stock Exchange including various estimates of flotation prices. These papers were referred to in court as the “Category B” documents.
  • In 1963, the company went public at a price equivalent to £7.80 per share on the basis of the share capital at the date of death. The issue was over- subscribed 22 times.
  • For the purposes of determining the value of this influential minority holding at the date of Mrs Lynall’s death, it had to be decided what information would have been available to the hypothetical purchaser. It was agreed that the 1960/61 draft accounts were available, but whereas the Revenue contended that the “Category B” documents should be taken into account, the executors argued that only published information and any further particulars that the directors would have given in answer to enquiries would be available, which would not include the “Category B” papers.

Decision in the High Court

It was accepted that the 1961 accounts would be available, but the “Category B” documents were excluded on the grounds that this information was not published, nor would this information be disclosed by the Board of Directors on enquiry.

The price was fixed at £3.50 per share although the judge added that if the “Category B” documents had been admissible then the price would have been £4.50 per share.

Decision in the Court of Appeal

It was accepted that when substantial blocks of shares in private companies changed hands, the practice was for directors to answer the reasonable questions of the parties and their advisers, in confidence.

As Widgery L J said:-

“it must be assumed that the purchaser would make all reasonable enquiries from all available sources, which a prudent purchaser of the property would wish to make and it must further be assumed that he would receive true and factual answers to all such enquiries”.

Reversing the decision of the High Court, the “Category B” documents were to be admitted and the price was fixed at £4.50 per share.

Decision of the House of Lords

Their Lordships looked at a basic premise of the open market, namely that it is open to all potential bidders with the same information. It was not relevant to consider evidence concerning the sale by private treaty of substantial shareholdings, nor was it necessary to take account of the information the Board of Directors would make available only to certain possible purchasers, unless it could be assumed that the information would be disclosed to everyone.

It was held that the available information was restricted to that which was generally available so that none of the confidential information concerning the possible flotation would be available to any purchaser. The availability of information should not depend upon the attitude of a particular Board of directors to a particular purchaser.

The original valuation at £3.50 per share was restored.

The position following Lynall

The House of Lords did not say precisely what information could be taken into account in the valuation of shares on the statutory open market basis above and beyond published information, but the following is regarded as the minimum available under the Lynall standard.

  • Published information available to all shareholders at or before the valuation date.
  • Matters of genuine public knowledge affecting the company.
  • Such further information that the purchaser is able to discover for himself.

The Finance Bill 1973 introduced changes that in effect restored the decision of the Court of Appeal and the link with commercial reality.


  Additional Guidance: SVM150000