AIM higher!

30 January 2024. Published by Harry Smith, Senior Associate

In Graham Chisnall and Others v HMRC [2023] UKFTT 857 (TC), the First-tier Tribunal (FTT) held, in allowing the taxpayers' appeals, that evidence derived from the sale price of shares on the Alternative Investment Market (AIM) was more reliable than evidence provided by a valuer employed by HMRC.


Graham Chisnall, Frank Cocker and Neil Mcarther (the Appellants) made gifts to charities of shares listed on the AIM of the London Stock Exchange during the tax year 2004/05.  Among the shares gifted were shares in Frenkel Topping plc (Frenkel).  The Appellants each claimed an income tax deduction pursuant to section 587B, Income and Corporation Taxes Act 1988, in respect of the market value of the shares, placing values on the shares of between 42.92 and 48.5 pence per share.  Two of the Appellants made similar gifts of shares in Vista Group plc (Vista), a company whose shares were also listed on the AIM, valuing those shares at 77.49 and 82 pence per share. 

HMRC enquired into each of the Appellants' returns and eventually (in no case less than 12 years after the enquiries were opened) issued closure notices, placing lower values on the shares and consequently reducing the size of the deduction claimed by the Appellants.

The Appellants appealed against the closure notices to the FTT.  They also sought an order from the FTT, pursuant to Rule 8 of the Tribunal Rules, that HMRC should not be permitted to take further steps in the appeals and that the appeals should be allowed on the basis of inordinate and inexcusable delay by HMRC.

During the course of proceedings, HMRC relied solely on expert evidence, provided by one of its own employees, which placed an even lower value on the shares than that claimed in the closure notices.  HMRC disavowed its previous valuations.  The FTT was of the view that it faced a binary choice: either to ascribe to the shares the value claimed in the Appellants' returns (as to which the burden of proof was on the Appellants), or to value the shares at the new, lower, amounts claimed by HMRC (as to which the burden of proof was on HMRC).

FTT decision 

The appeals were allowed.

The Appellants contended that in the circumstances (where none of the shares had been traded on the dates of the relevant gifts in respect of which deductions were claimed), the correct approach to determining the market price was to extrapolate it from the price at which the shares had previously traded and the price at which they were next traded following the gift.  The Appellants contended that the relief claimed in their tax returns had been calculated in accordance with this methodology.  The Appellants also argued that no reliance should be placed on the evidence of HMRC's expert witnesses as they were employed by HMRC.

HMRC argued that the correct approach to valuation was that set out in the expert reports led in evidence (and not the earlier reports which had been used to support the valuations in its closure notices).

The FTT was of the view, citing McArthur and Bloxham v HMRC [2021] UKFTT 237 (TC) at [15] and Netley v HMRC [2017] UKFTT 442 (TC) at [203], that the market value of the shares was to be identified on the basis that: 

  1. a hypothetical sale of the shares on the relevant date was to be assumed;


  2. the hypothetical vendor was to be anonymous and a willing seller prepared to sell when faced with a fair price;


  3. reasonable marketing was to be assumed and it was to be assumed that all potential purchasers had an equal opportunity to make an offer;


  4. the hypothetical purchaser should be assumed to be reasonably prudent and to have informed themselves of all relevant facts;


  5. the hypothetical purchaser was to embody whatever was actually the demand for the assets at the relevant time in the relevant market; and


  6. the market value was what the highest bidder would have offered for the asset in the hypothetical sale.

 The FTT said that appropriate weight had to be given to the sale prices of the relevant shares on the AIM.  It was a legitimate market, and no authority had been identified for the proposition that the trading values should be ignored.  It was not the case that any expert report would have more weight than the prices at which the shares had actually traded.

In relation to the Frenkel shares, the fact that HMRC's expert was an HMRC employee did not vitiate his evidence; he had sufficient expertise to act as an expert and was aware of his primary duty to the FTT.  However, in the circumstances, the FTT gave 'extremely limited weight' to HMRC's expert's evidence.  Its value was 'seriously diminished' by HMRC's failure to explain why it contended that it was more reliable than the previous report, from which the values attributed to the shares in the closure notices had been derived.  Indeed, there were reasons that this previous report might be preferred: its valuations had been given judicial support in Netley.  The FTT found none of HMRC's purported justifications for asking its expert to ignore the valuations in the closure notices, which took into account the decision in Netley, persuasive.

In relation to the Vista shares, the FTT noted that, again, HMRC had advanced no explanation as to why it considered the valuation given by its expert in the litigation.  Indeed, the FTT considered that this lack of an explanation as to why one of the two reports was to be preferred undermined the evidential value of both reports.  In the specific circumstances, the fact that HMRC's expert was an HMRC employee 'seriously diminished' the weight of his evidence.

In the circumstances, the FTT preferred the valuations set out in the Appellants' returns and allowed the appeals.

The FTT dismissed the abuse of process application. It noted that the burden of proof in this regard was on the Appellants and delay did not, in and of itself, directly affect the fairness of a hearing without some further factor. In the present case the Appellants had not discharged the burden of showing that their position had been weakened by the delay.



The FTT's comment that '[n]o matter how weak or unsatisfactory the evidence relied on by one party may be, it must in the particular circumstances of the present cases be accepted by the Tribunal if the evidence relied on by the opposing side is even weaker and less satisfactory' is telling.  Although the FTT stressed the fact-sensitive nature of its decision and that it was reached on the basis of the particular evidence and arguments relied on by the parties, nonetheless this decision should be required reading for anyone involved in a tax dispute in which expert evidence is to feature.

The FTT was critical of HMRC in this case and said that there was apparent bias in the way that it had used its own valuer and in particular the way that they had been instructed not to use the prior FTT decision in Netley as their starting point. It is to be hoped that following this decision and the FTT's critical comments, HMRC will reflect on how it engages with expert evidence and learn any appropriate lessons.

The decision can be viewed here.

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