Dwan & ors v Commissioners for HMRC [2022] WTLR 501

Analysis

Five shareholders of Taskcatch plc made gifts of shares in the company to various charities and then claimed tax relief on the basis of the value of such shares at the dates of the gifts. Mr Dwan gifted 500,000 shares on 31 March 2003 and claimed relief on the basis of their value being 32.5p per share. On 31 March 2003, a small trade of shares in Taskcatch plc was registered on AIM at a price of 32.5p per share. Also on 31 March 2003, shares in Taskcatch plc were issued at the implied price of 7p per share to the vendors of a company that was being acquired. On 5 October 2004, Mr and Mrs Dwan gifted a total of 726,000 shares and stated their value to be 40p per share. On 6 October 2004, Mr Hunnisett, Mr Openshaw-Blower and Mr Parkinson each gifted 242,000 shares and stated their value to be 39.75p. As at 5 and 6 October 2004, the price listed on AIM was 40p per share. However, there were a number of transactions from June 2004 to 4 October 2004 in which the shares were transferred or placed for a variety of prices ranging from 32p to 3.3p per share.

HMRC opened enquiries into the parties’ respective tax returns and concluded that the tax relief claimed by each party was excessive on the basis that the value of the gifted shares as at 31 March 2003 was 10.35p per share and as at 5 and 6 October 2004 5.09p or 5.82p per share. The shareholders relied on expert evidence which stated that the shares had a value of 32.5p on 31 March 2003 and 32p on 5 and 6 October 2004. HMRC’s expert stated that the value of the shares was between 5.4p and 7.1p on 5 and 6 October 2004 and between 8.2p and 9.5p on 31 March 2003.

Held:

1. (1) The only question for the court was the determination of the highest price a reasonably prudent purchaser might pay for the shares.
2. (2) The shareholders’ expert appeared to rely solely upon the AIM trade in reaching his valuation as at 31 March 2003 and the AIM trade represented a very small proportion of the shares and transactions. Such expert then relied mainly on the transaction prior to October 2004 with the highest price and did not take into account other much lower priced transactions.
3. (3) HMRC’s expert took into account recent transactions of the shares, looked at comparable company transactions, carried out an earnings-based valuation, undertook cross-checks, looked at the revenue multiples used in comparable transactions, analysed Taskcatch plc’s financial performance and described the sector within which the company operated. Although such expert produced a detailed report, to say that a typical purchaser would not look at all documents in the public domain was inconsistent with the approach that the prudent purchaser informed themselves as to all relevant facts. The expert report was not affected by any instruction to not consider lock-in periods because the lock-ins were not considered by the experts at all, they were personal and not an inherent restriction on the shares and they were not likely, if considered, to increase the value of the shares.
4. (4) Accordingly, the expert report obtained by HMRC was to be preferred and the mid-point of 8.85p in 31 March 2003 and 6.25p on 5 and 6 October 2004 was adopted, meaning that the shareholders had been undercharged tax.

JUDGMENT JUDGE JOHN BROOKS: Introduction [1] The appellants, Mr Alfred Michael Dwan, Mrs Amanda Dwan, Mr Malcolm Terence Hunnisett, Mr Andrew Mark Openshaw-Blower and Mr Richard Parkinson, each made gifts of shares in Taskcatch plc (‘Taskcatch’ or the ‘Company’) to charity and claimed tax relief on the basis of the value of the gifted shares …

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