HC Deb 10 July 1973 vol 859 cc1348-50

(1) The provisions of subsection (3) below shall have effect in any case where, in relation to an asset to which this section applies, there falls to be determined:

  1. (a) by virtue of section 7(5) of the Finance Act 1894 (principal value for purposes of estate duty) the price which, in the opinion of the Commissioners, property consisting of the asset would fetch if sold in the open market; or
  2. (b) by virtue of section 44(1) of the Finance Act 1965 (market value for purposes of tax on chargeable gains) the price which 1349 the asset might reasonably be expected to fetch on a sale in the open market.

(2) The assets to which this section applies are shares and securities which are not quoted on a recognised stock exchange, within the meaning of the Corporation Tax Acts, at the time as at which their principal value for the purposes of estate duty or their market value for the purposes of tax on chargeable gains falls to be determined.

(3) For the purposes of a determination falling within subsection (1) above, it shall be assumed that, in the open market which is postulated for the purposes of that determination, there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by private treaty and at arm's length.

(4) The provisions of Schedule (market value of unquoted shares and securities) to this Act shall have effect with respect to the application of this section.

(5) This section and Schedule (market value of unquoted shares and securities) to this Act:

  1. (a) so far as they relate to estate duty, shall be construed as one with the Finance Act 1894; and
  2. (b) so far as they relate to capital gains tax, shall be construed as one with Part III of the Finance Act 1965.—[Mr. Nott.]

Brought up, and read the First time.

Mr. Nod

I beg to move, That the Clause be read a Second time.

Mr. Deputy Speaker

We can discuss at the same time new Clause No. 18—Realistic basis of valuation for unquoted companies—capital gains tax—and new Clause No. 19—Realistic basis of valuation for unquoted companies—estate duty—both in the name of the hon. Member for Truro (Mr. Dixon), and Amendment No. 50, which is the new Schedule entitled Market value of unquoted shares and securities in the name of the Chancellor of the Exchequer.

Mr. Nott

The new clause is concerned with the valuation of unquoted shares and securities for the purpose of estate duty and capital gains tax. In effect, it provides that unpublished information can be taken into account in arriving at the valuation. It thus ensures a more realistic basis of valuation than that which has obtained since the decision in the House of Lords in the Lynall case, the effect of which was to exclude unpublished information.

Although in theory the exclusion of unpublished information in valuing unquoted shares could work either way, the effect in practice is normally to reduce value. Thus, the Lynall decision has meant that, for estate duty, duty is being paid on a lower value than before that decision, but for capital gains tax the Lynall decision imposed severe extra tax burdens on individual taxpayers. The Lynall decision, when applied to the determination of a value as at April 1965, could considerably reduce that value and correspondingly increase the amount on which capital gains tax is payable.

The new rule, which will provide a more realistic basis of valuation, is in subsection (3) of the new clause. Its effect is to assume that certain information is to be available in arriving at the valuation. The subsection provides that it shall be assumed that there is available to any prospective purchaser of the asset all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by a private treaty and at arm's length.

My hon. Friend the Member for Truro has tabled two new clauses on this general subject. I believe that the Government's new clause meets the objective he has in mind.

Mr. Piers Dixon (Truro)

The Government's new clause covers, in much more expert language, the points which I attempted to cover in my two new clauses. I therefore commend my hon. Friend the Minister of State on having introduced it

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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