Revenue Note for Guidance
This Part deals with matters such as the market value of property, the market value of certain shares in private trading companies, the taxable value of a taxable gift or taxable inheritance, contingencies affecting gifts or inheritances and the valuation date for tax purposes.
The value of a gift or an inheritance will normally be its open market value on the valuation date.
In the case of unquoted shares or securities, it is assumed that all the relevant information, which a prudent purchaser might require, is available to him/her.
Special provision is made for the valuation of shares in a private company (as defined) “controlled” by a donee or successor. “Control” includes control through a combination of some or all of family shareholdings, powers of voting or of dictating dividend policy, nominee holdings, trust holdings or holdings of other controlled companies. Where control, as defined, exists, the element of control is taken into account in arriving at the value of the shares.
The value on which tax is charged is also dealt with. In the first instance, debts and other liabilities to which the gift or inheritance is subject are deducted from the market value, the balance remaining being called the “encumbrance-free value”. If the donee or successor takes property comprised in the gift or inheritance as absolute owner, any consideration given by him/her is then deducted. (A different rule applies where the donee or successor takes a limited interest – see notes on section 28).
If the benefit of a gift or of an inheritance taken by a person is to cease on the happening of a contingency, the contingency is to be ignored in computing tax. If the contingency happens, the tax will be adjusted as if the person took a limited interest for the actual period he/she had the property. Tax will, however, be payable in respect of any property substituted for the gift or inheritance which was given up.
As regards the date on which property is to be valued, the donee of a gift is normally entitled from the date of the gift and this date is the usual valuation date. For inheritances, the valuation date is, normally, the date of ascertainment of the residue or other benefit and of its retention for the benefit of the successor.
This section provides that the market value of any property required to be valued under the Act, other than certain shares in private companies which are dealt with in section 27, is the price which the property would fetch if sold in the open market, on the date on which it is to be valued, in circumstances calculated to result in the best price for the vendor.
The section makes provision for the inspection of property and the payment of the costs of valuation where the Revenue Commissioners nominate a valuer to prepare a valuation.
In valuing unquoted shares or securities, it is assumed that all the relevant information which a prudent purchaser might require is available to him/her.
(1) “unquoted shares or securities” in subsection (6) means shares or securities which are not dealt in on a stock exchange.
(2) The open market value to a vendor of the property is the basic criterion in arriving at the value of property required to be valued at market value for the purpose of the tax, except where (as in section 27) different provisions apply.
In the absence of an actual sale of property on the date on which such property is to be valued, the market value will normally be a matter for negotiation between the parties and the Revenue Commissioners. While the price which would be realised on a notional sale is the price which, in the opinion of the Revenue Commissioners, the property would fetch, there is a right of appeal against their opinion (sections 66 and 67)—
(3) In arriving at their estimate of market value of property, the Commissioners must take no account of the possibility of the property realising less than its best price by being sold as a block of property, rather than, if it is more profitable to do so, in separate lots. If, for example, a large block of shares were placed on the market on one day, the price would be depressed. The possibility of a “flooded market” is to be ignored.
(4) The Revenue Commissioners can use all means and information available to ascertain the market value.
Any person having custody or possession of property required to be valued for tax purposes must, if given reasonable notice, allow reasonable access to the property for the purpose of such inspection, subject to a penalty for non-compliance, which is provided for in section 58(2).
(5) The Revenue Commissioners will pay the costs of experts who are retained by them to assist them in valuing property.
(6) In valuing unquoted shares or securities, it will be assumed that there is available to any prospective purchaser of the shares or securities all the information which a prudent prospective purchaser might reasonably require if he/she were proposing to purchase them from a willing vendor by private treaty and at arm’s length.
Relevant Date: Finance Act 2015