It makes perfect sense that the market value of shares given to charity is deductible from the donor's tax liabilities. However, as an important tax tribunal ruling showed, discerning exactly what that value is can be very far from straightforward.

The case concerned five taxpayers who donated shares in a company listed on the Alternative Investment Market to various charities. They argued that the shares were each worth between 32.5p and 40p when gifted. Based on those values, they claimed tax relief under Section 587B of the Income and Corporation Taxes Act 1988. HM Revenue and Customs (HMRC), however, asserted that the values relied upon were overstated and well above the shares' market value at the time.

After hearing expert testimony on both sides, the First-tier Tribunal (FTT) preferred the valuation evidence put forward by HMRC. That evidence focused on what a prudent purchaser of the shares, having made appropriate inquiries, would have paid for them on the dates when they were donated. That, HMRC argued, was the best means of determining what the shares would have fetched on the open market.

The valuation exercise was hindered by the fact that the company had a limited operating history and its shares were trading thinly at the time. The FTT found on the evidence, however, that the value of the shares on the donation dates ranged between 6.25p and 8.85p each. It followed from that conclusion that the taxpayers had been undercharged to tax. The FTT invited them to agree with HMRC the amounts by which their tax liabilities in the relevant years should be increased.