Tax Calculators & Tools

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Document updated/added on 04.05.2018

Topic: Capital gains tax

Share value calculator
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Share value calculator

Share value calculator

When you gift, or transfer at undervalue, shares in your trading company to anyone other than your spouse, it is deemed to have been made at fair market value and will be liable to CGT (although you may be able to claim gift relief to defer the gain). Therefore, you will often need to value the shares at the time of the transfer. Use the share value calculator as a useful guide to help you do this.

Valuing shares - earnings basis

The most common method adopted for valuing shares in trading companies is to use a multiple of maintainable or “super” profits. Maintainable profits are those below which the future profits are unlikely to fall, in the absence of exceptional circumstances.

Adjustments to profits

It may be necessary to make adjustments to the profits to reflect commercial charges, for items such as directors’ remuneration. Adjustments to profits are usually made to substitute commercial charges for any non-commercial ones and to remove the effects of exceptional or extraordinary items.

Weighted average

The earnings figure will often be calculated by reference to an average, or weighted average, of a number of years’ past profits, usually three or four years. However, if the past profit levels bear no relation to the maintainable profits, then the average of past profits may not be an appropriate basis.

Which multiple?

Very often valuations for tax purposes are of minority holdings. A common method used for this purpose is the application of a price earnings or P/E ratio, from a comparable quoted company (or sector average), to the earnings per share of the unquoted company, from which a discount of up to about 80% for a small uninfluential minority holding may be applied.

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