Gray's Timber Products Ltd v HMRC [2009] CSIH

4 March 2009

Gray's Timber Products Ltd v HMRC [2009] CSIH decided a question with potentially far-reaching ramifications, namely the proper approach to valuing employment-related securities under Section 446Y of the Income Tax (Employment and Pensions) Act 2003.

On his appointment, a Director of a Company had acquired shares in it. A majority of shareholders also agreed enhanced terms on which the Director could sell his shares if there was a change in control of the Company. When the Company was taken over, the question arose whether the Director had received more than the market value of the shares (so triggering a charge to income tax under Section 446Y) or not (so bringing the transaction within capital gains tax legislation). By a majority the Inner House accepted the argument for HMRC that what had to be considered was a notional sale between a hypothetical willing seller and a hypothetical willing buyer. On that approach, what had to be valued was the shares alone and not any personal interest that the actual vendor may have had in them. The shares had therefore been sold for more than market value and section 446Y applied.

David Johnston QC of Axiom Advocates appeared for HMRC.

http://www.scotcourts.gov.uk/opinions/2009CSIH11.html