Taxman wages 20-year campaign over valuation of shares given to good cause

We are a generous nation. Unfortunately at times the taxman seems determined to punish taxpayers’ generosity rather than encourage it. Three years ago I highlighted the case of Allan Webster, who incurred a tax bill of £ 215,000 on a generous £800,000 charitable donation simply because he had the temerity to submit his self-assessment return early. Sadly we have just heard of another case that could also provide a disincentive to make donations.

In 2004 Graham Chisnell made a gift to charity. Rather than cash, he chose to donate shares he held in Frenkel Topping Group, quoted on the Alternative Investment Market (Aim). When a donation is made this way the donor can claim tax relief on the value of the shares against their income, typically on their self-assessment return.

Shares on Aim are quoted and traded as part of the London Stock Exchange but they are not quoted on its Daily Official List. It is this fact that gives many Aim shares an inheritance tax advantage. However, it also means that the value quoted on the Aim market is not necessarily the value accepted by

HMRC for tax relief on charitable donations. Mr Chisnell transferred a parcel of shares to his chosen charity on Sept 8 2004. In common with other small companies on Aim, shares in Frenkel Topping tend not to be traded every day. When he made a claim for tax relief on his 2004-05 self-assessment return Mr Chisnell looked up when the shares had traded close to Sept 8 to arrive at a value of 48.5p per share. HMRC opened an inquiry into his return on Nov 15 2006. The taxman issued a “closure notice” on May 10 2019 in which the shares were valued at 14.6p, just 30pc of the value at which they were quoted on Aim. HMRC used the valuation from a report commissioned for the purpose from Michael Weaver, of Duff & Phelps, an investment research firm.

Unsurprisingly Mr Chisnell appealed and the matter eventually came to court in June, almost 20 years after he made his donation. Before then, however, HMRC had commissioned another report, this time from Iain Cook, a senior share valuer employed by HMRC. He disagreed with Mr Weaver and said the shares were worth only 10p, just 20pc of the price on Aim.

In court HMRC accepted that the 12-year delay was excessive. The two judges were highly critical of both this delay and the late change to the share value based on the internal report of Mr Cook. They said “it appears that HMRC have in these proceedings asked an employee to act as expert due to the high cost of independent experts” and that “extremely limited weight is to be given to Mr Cook’s expert evidence”. The tribunal then ruled in favour of Mr Chisnell.

I have sympathy with HMRC’s decision to open an inquiry. The head of its charity division told me it was supportive of small charities. However, he said the taxman was very concerned about some highly aggressive schemes designed to abuse the charity exemption. In Mr Chisnell’s case HMRC accepted the share price had not been affected by tax avoidance motives or market manipulation and that there was no suggestion that Frenkel Topping was anything other than a legitimate business. Once HMRC had established this I cannot see the reason to pursue Mr Chisnell. I’m still waiting for the taxman to comment.

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