Salvesen’s Trustees v Inland Revenue Commissioners: SCS 1930

The court considered the valuation of shares in a notional purchase. The company’s articles of association contained a provision that the company might at any time, by extraordinary resolution, resolve that any shareholder, other than a director or a person holding more than 10 per cent of the shares of the company do transfer his shares, and, to put it shortly, that upon such a transfer the vendor would only be entitled to their nominal value if fully paid.
Held: The court fixed the value of the fully paid andpound;1 shares for the purposes of duty at andpound;3. The court had to postulate a willing purchaser and a willing seller meeting in a free agreement; the willing seller being armed with the information which any holder of the shares would be untitled to demand of his directors and the willing purchaser with that which could have been reasonably ascertained by him as at the date of death.
Lord Fleming said: ‘The Act of Parliament requires, however, that the assumed sale, which is to guide the Commissioners in estimating the value, is to take place in the open market. Under these circumstances I think that there is no escape from the conclusion that any restrictions which prevent the shares being sold in an open market must be disregarded so far as the assumed sale under section 7(5) of the Act of 1894 is concerned. But, on the other hand, the terms of that subsection do not require or authorise the Commissioners to disregard such restrictions in considering the nature and value of the subject which the hypothetical buyer acquires at the assumed sale. Though he is deemed to buy in an open and unrestricted market, he buys a share which, after it is transferred to him, is subject to all the conditions in the articles of association, including the restrictions on the right of transfer, and this circumstance may affect the price which he would be willing to offer.’

Lord Fleming
1930 SLT 387
Finance Act 1894 7(5)
Cited by:
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 . .
CitedWatkins and Another v Revenue and Customs FTTTx 17-Nov-2011
FTTTx Inheritance tax – discounted gift trust – valuation of retained interest to income stream – s160 IHTA 1984 – burden of proof – adequacy of comparables – appeal dismissed . .

Lists of cited by and citing cases may be incomplete.

Stamp Duty, Company

Leading Case

Updated: 02 November 2021; Ref: scu.396597