Lynall v Inland Revenue Commissioners: HL 2 Jan 1971

The House was asked about the fixing of ‘price . . in the open market’ of a parcel of shares held in a private company. The Finance Act 1894 provided a method of valuation of property for estate duty purposes by reference to what the property would fetch if sold in the open market at the time of death. Confidentially there was a flotation in contemplation, but this was not public knowledge. The possibility of flotation would increase the value of the shares. The Revenue contended that the possibility should be taken into account.
Held: The hypothetical purchaser should not be treated as having knowledge of such information. Under section 160, the basis of valuation is what would have been paid for the subject property, in the open market, by a willing purchaser from a willing seller
Lord Reid said: ‘We must decide what the highest bidder would have offered in the hypothetical sale in the open market, which the Act requires us to imagine took place at the time of Mrs. Lynall’s death. The sum which any bidder will offer must depend on what he knows (or thinks he knows) about the property for which he bids. The decision of this case turns on the question what knowledge the hypothetical bidders must be supposed to have had about the affairs of Linread. One solution would be that they must be supposed to have been omniscient. But we have to consider what would in fact have happened if this imaginary sale had taken place, or at least – if we are looking for a general rule – what would happen in the event of a sale of this kind taking place. One thing which would not happen would be that the bidders would be omniscient. They would derive their knowledge from facts made available to them by the shareholder exposing the shares for sale. We must suppose that, being a willing seller and an honest man he would give as much information as he was entitled to give. If he was not a director he would give the information which he could get as a shareholder. If he was a director and had confidential information, he could not disclose that information without the consent of the board of directors.
The respondents’ figure of andpound;4 10s. per share can only be justified if it must be supposed that these reports would have been made known to all genuine potential buyers, or at least to accountants nominated by them. That could only have been done with the consent of Linread’s board of directors. They were under no legal obligation to make any confidential information available. Circumstances vary so much that I have some difficulty in seeing how we could lay down any general rule that directors must be supposed to have done something which they were not obliged to do. The farthest we could possibly go would be to hold that directors must be deemed to have done what all reasonable directors would do. Then it might be reasonable to say that they would disclose information provided that its disclosure could not possibly prejudice the interests of the company. But that would not be sufficient to enable the respondents to succeed.’


Lord Reid


[1971] 3 All ER 914, [1972] AC 680


Finance Act 1894


England and Wales


Appeal fromIn re Lynall deceased CA 1968
Harman LJ said: ‘The sale envisaged by the section is, as is agreed, not a real but a hypothetical sale, and must be taken to be a sale between a willing vendor and a willing purchaser: see, for instance, the speech of Lord Guest in In re Sutherland . .

Cited by:

CitedCrabtree v Hinchcliffe (Inspector of Taxes) HL 27-Oct-1971
The taxpayer’s shareholding in his quoted company was to be sold. A sale was substantially agreed, but not completed for several months. Between times came the beginning of the tax year. The Act provided that, for quoted shares, save in special . .
CitedGrays Timber Products Ltd v Revenue and Customs SC 3-Feb-2010
An assessment to income tax had been raised after the employee resold shares in the company issued through the employees’ share scheme at a price which the Revenue said was above the share value. The company appealed against a finding that tax was . .
Lists of cited by and citing cases may be incomplete.

Capital Gains Tax

Updated: 06 May 2022; Ref: scu.215902