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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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Information Standards: the Statutory Provisions

The provisions introduced by the FA 1973 are now to be found in s.168 IHTA 1984 and s.272(3) TCGA 1992. The latter provides that -

” …. it shall be assumed that, in the open market which is postulated for the purposes of [a determination of value], there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by private treaty and at arm’s length”.

The wording of s.168 IHTA is not quite identical, but identical in meaning.


The purpose of the statutory provisions was to restore the link with commercial reality, which was effectively severed by the Lynall decision, for valuations under s.7(5) Finance Act 1894 (for ED): and s.44(1) Finance Act 1965 (for CGT) now s.272 TCGA 1992.

Broadly, the aim is to import a standard of information based on actual market practice, including privately negotiated sales, into the statutory open market. The fundamental principle of an open market is that no possible prospective purchaser is excluded. This is preserved following the decision in Lynall.

The statutory information standard (in effect) restores the decision of the Court of Appeal in Lynall.

” …. might reasonably require”.

The question raised by the statutory provisions is, what information might a prudent purchaser reasonably require?

The desire of the purchaser would undoubtedly be to obtain as much information as possible. The draftsman has, however, acknowledged reality in the Act by inserting “reasonably”, which must be a word of limitation.

In the circumstances “reasonably” cannot be interpreted subjectively as what the purchaser requires. It has an objective meaning, in other words what might be regarded as information reasonably available to the purchaser of the particular shareholding being valued.

It will depend, amongst other things, upon the following factors:

* The physical availability of the information. Only information which is actually available (but perhaps not published) can be disclosed. The legislation does not impose a duty to ascertain information which is not within the direct knowledge of the directors.
* The influence of the potential purchaser on the company either in terms of voting power or on the size of the transaction in money terms.

Comments on the legislation

When considering what information would be reasonably required by a potential investor, it is worth bearing in mind the following points.

* The legislation concerns only the amount of information and does not evaluate it.
* While the emphasis has been placed on the information that the prospective purchaser would reasonably require to satisfy the open market conditions it is axiomatic that the vendor has identical information.
* As an objective test, evidence concerning what the Board of a particular company may or may not be prepared to disclose is immaterial. The opinion in Lynall was that the valuation should not depend upon the attitude of members of a particular board of directors.

As Lord Reid said in Re Lynall [1971] 3AER 919:

” …. directors must be deemed to have done what all reasonable directors would do ….”.

  Additional Guidance: SVM150000