Weekly Tax Update - Monday 31 October 2011

1. Private Clients

   1.1. Claim for negligible value and valuation of shares

   The First Tier Tribunal cases of Messrs Barker, Harper & Wickes v Revenue & Customs (TC01487) concerned the valuation of shares and claim of negligible value.

   The taxpayers won their appeals and the very long published decision provides an interesting outline of the points at issue and background detail. The appeals were joined because the issues in each of the three cases were the same, but the claims and the appeals were distinct.

   The taxpayers had acquired shares in a company called Diligenti Limited on 19 December 2000 and had made a claim under TCGA 1992 s24(2) on the basis that their holdings had become of negligible value by 5 April 2001. Each holding was of 11,000 ordinary shares of one penny, which were subscribed at par with a premium of £303.0203 per share, so that each taxpayer paid a total of £3,333,333 for his shares.

   The first point at issue was whether the term 'value' in section TCGA 1992 s24(2). meant market value as defined in s272? Does it mean market value as defined in s272 as modified by s 273? Or does it have another meaning altogether, and if so what?

   The conclusion of the Judges was that to speak of an asset which has become of negligible value as having a market value makes no sense. The very fact that it has no market value is why it is said to be of negligible value; if the asset has a market value, then its value cannot be negligible. That it may nonetheless have a subjective value to its owner is beside the point: an item of sentimental value to a person may well be nearly priceless as far as that person is concerned, but it would be quite unworkable for the tax base to depend on the accident of personal attachment to an asset rather than upon a value evidenced by an actual or hypothesised arm's length transaction.

   The test of eligibility for a claim under s24(2) is therefore: does this asset have a market value? If the answer is no, a claim may in principle be made; if the answer is yes, no claim under this provision is appropriate. The draftsman had accordingly no need to specify whether the word 'value' in the phrase 'negligible value' meant 'market value' – or some other type of value - because the reference is to a situation in which there is no objective value. It was rightly accepted by both parties that 'negligible value' meant 'worth next to nothing'; and although it is at first sight odd for a claim for 'negligible' value to be set at nil, it is quite consistent with an approach to the issue which accepts that nil and negligible are so close as to make no difference.

   The taxpayers accepted that the provisions of section 24(2)(c), allowing an earlier time than that of the actual claim to be specified as the time when the shares had become of negligible value, does not permit account to be taken of information which was not and could not have been available at the specified time. But they submitted that information which had come to light after the event, and which could have been obtained at the specified date, could be taken into account to show that the circumstances at the time were such that the asset in question would not have had any value at that point, because the later-discovered information would have become apparent in any attempt to sell the asset.

   www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=5858

   1.2. Spain referred to the Court of Justice over inheritance and gift tax rules

   The European Commission has decided to refer Spain to the EU's Court of Justice for discriminatory rules on inheritance and gift tax that require non-residents to pay higher taxes than residents.

   The Commission had already formally requested Spain on 5 May 2010 (IP/10/513) and additionally on 17 February 2011 to take action to ensure compliance with the EU rules in regard to inheritance and gift tax provisions. However, no amendments have been made to Spanish legislation on the matter.

   Inheritance and gift tax in Spain are regulated at both state level and at the level of autonomous communities. The autonomous communities' legislation grants residents a number of tax benefits that, in practice, allow them to pay much lower taxes than non-residents.

   The Commission considers that this discriminatory tax treatment constitutes an obstacle to the free movement of people and capital, fundamental principles of the EU's Single Market, and is in breach of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively).

   http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1278&format=HTML&aged=0&language=en &guiLanguage=en

2. PAYE and Employment matters

   2.1. Discussion document on PAYE pooling

   HMRC has issued a discussion document on a proposal to offer businesses a...