Tax valuations on shares – 10 years of challenging art and science

March 2026 marked the ten year anniversary of HMRC withdrawing their facility for UK businesses to submit a Post Transaction Valuation Check (PTVC) in respect of the issuing of shares (including transactions involving employees).

Whilst the ability to make a submission in respect of qualifying “tax approved” option/share plans has thankfully been retained by HMRC (including the ability to request a pre-transaction valuation), the issue of trying to establish the tax value of shares in a private company was pushed firmly to companies and their advisers.

So what have we observed in the market over the last ten years?

1. Shares are not options but option valuation modelling has taken hold.

Ten years ago, shares which contained performance conditions (typically dubbed Growth Shares) would have had low upfront cost – as it was considered that the future growth or “hope” was already priced into the current market value of the existing share classes.

However, during the last decade, the idea has developed that no share could be bought for a “peppercorn” amount as anyone buying a share must think there is a possibility of value accruing.  Accordingly, putting aside the slightly circular thinking involved, the solution many valuers have come to is to use option modelling to establish the value of the “growth” share.

2. Valuations have become more conservative, despite performance conditions not objectively getting any easier.

It is not quite clear if it is causation or correlation, but the increased “mood music” around financial reporting in the UK (in particular audits and valuation) seems to be occurring alongside valuations which are uncommercial for many private companies (particularly start-up and scaling businesses).

Whilst valuations should always be robust and based upon established practices and techniques, there is also a responsibility to produce valuations which are accurate and reflect the commercial reality for many growing businesses.

3. Getting an independent valuation matters even more.

The UK Growth agenda relies upon a steady stream of businesses being grown for sale or IPO. These transactions are coming under scrutiny from ever more sophisticated due diligence practices.  Having the perceived certainty of an agreed PTVC made this part of the transaction process much easier for employee shareholders.  In the absence of this, having an independent third party valuation has become even more crucial to make sure that the employee vendors are not open to unnecessary guarantees and warranties (or even price chips).

Given our expertise in the fields of share plan drafting and performance target setting, we have also developed an approach to tax valuations which are grounded in transparent, well tested methodologies, but also reflect the practical realities of transactions, shareholder dynamics and market practice.

If you would like to discuss any of these questions – or any other thoughts sparked by this article – please contact Stuart James (stuart.james@mm-k.com) in the first instance.

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