Earlier this year, we published The Price is Right: Valuing Trading Companies (8 February 2021) which provided an overview of the various methodologies and principles typically used to value unquoted trading companies. In this article, we will set out how we value property investment companies and the kind of factors that must be considered in order to reach a robust valuation. When might a valuation be required? In our experience, valuations of property investment companies are typically required in the following circumstances: Inheritance tax planning Sale or transfer of shares Matrimonial proceedings Family Investment Companies It's important to note that this is not an exhaustive list, and a valuation may be requi...

At PD Tax Consultants we value companies for all kinds of reasons, ranging from setting up employee share schemes to facilitating a management buy-out. In this article, we have provided a brief overview of the methods we typically use to value unquoted trading companies. It is important to understand that valuing companies is both a science and an art, and each valuer will make different judgement calls resulting in a differing result. With this in mind, it is often appropriate to use two or more valuation methods in order to ascertain a better idea of a value range and to ensure that the valuation reached is reasonable. 1. Maintainable Earnings Method The first and most commonly used method for valuing trading companies is the mai...

On a sale of shares, proceeds of the sale may be paid in full on completion. Alternatively, part of the proceeds may be paid on completion, with the balance becoming payable at one or more future dates. In the latter case, there may be certain performance conditions attached to the future proceeds (typically related to the financial performance of the company) that must be met in order for the vendor to receive further payment. The latter case is commonly called an “earn out”, and there are several tax points to consider when negotiating a sale of shares to ensure that the earn out is practical and tax effective for the parties involved. Why Consider an Earn Out? There are numerous reasons to have an earn out as part of a share...

When businesses/companies employ capital assets (e.g. machinery, motor vehicles) for use in their business, such costs are not deductible from trading profits because the expenditure will have an enduring benefit for the trade. Instead, relief is available through capital allowances which essentially allows relief for the fall in value of capital assets, providing a deduction when arriving at taxable profit. Furthermore, the annual investment allowance (AIA) is available to businesses to encourage greater levels of investment. The AIA reduces the costs of capital by providing 100% capital allowances for the first £1,000,000 (between 1 January 2019 and 31 December 2020) of plant an machinery (excluding cars) acquired by the business for...

In its first report from November 2018, the Office of Tax Simplification (OTS) highlighted the significant difference the number of IHT forms submitted each year (275,000), and the number that resulted in inheritance tax (IHT) being due (24,500), highlighting the administrative burden of the current system. In its second report, the OTS provides suggestions of how the system could be made easier to understand, more intuitive, and simpler to operate. Recommendations Lifetime Gifts A number of IHT reliefs/exemptions apply on gifts made during a person’s life. The OTS note that these can be confusing and difficult to apply, and have therefore made the following recommendations: 1 - Replacement of several monetary gift exemptio...

The provision of company shares can be a valuable tool in incentivising key members of staff to remain with the company long term and actively grow the company’s business and increase profits. HMRC has several approved employee share schemes, each with their own tax advantages for the employee and employer/shareholders. However, certain conditions must be met by the employer/employee in order for these schemes to qualify and therefore they are not always commercially viable. Growth shares are a practical option, especially where the company shares already have significant intrinsic value. What are Growth Shares? Suppose that a company wishes to incentivise one of its managers to stay with the business and continue to contribut...

A roundup of the latest news from the world of tax including highlights from the Finance Act 2013 as well as recent tax cases of interest. Click on the links below to view the full articles. Lifting the Corporate Veil http://wp.me/p3gayI-4a The recent case of Prest v Petrodel Resources Ltd looks at the powers of divorce courts to pierce the corporate veil. Sale of Home but is it a Residence http://wp.me/p3gayI-40 The recent Moore case acts as a reminder that occupation by itself is not sufficient to make a house a 'residence' for capital gains tax purposes. Company Purchase of Own Shares - Transactions Void http://wp.me/p3gayI-3M The recent case of Russell Baker highlights the difficulties that arise where a company purchase of...