Sale Value vs Tax Value: Why One Business Has Several Valuations

One company, several different values

An owner who has been told their business is worth £5m by a broker, £3.4m by their accountant for an EMI grant, and £2.6m by a valuer for a probate return has not been given three conflicting opinions. They have been given answers to three different questions.

Value is not a property of a company in the abstract. It is the answer to a specific question: what would a specific type of buyer pay for a specific holding, on a specific date, under a specific legal basis of value. Change any of those variables and the number legitimately changes.

The four bases of value used in the UK

Almost every argument about "what the business is really worth" is in fact a disagreement about which of these four applies.

Why the sale number is usually the highest

A trade buyer is not valuing your business standalone. They are valuing your business inside theirs.

• Synergies. Removing a duplicated finance function, folding two premises into one, buying materials on the acquirer's terms. Part of that saving is often paid away in the price.
• Strategic scarcity. A licence, a customer relationship, a geography or a team the buyer cannot build quickly.
• Competitive tension. A properly run process with several credible bidders prices at the top of the range, not the middle.
• Control. A 100% sale conveys full control of cash flow, strategy and exit. Control is worth a premium, and there is no minority discount.

Statutory market value for tax purposes explicitly excludes special purchaser synergies in most cases. That single exclusion accounts for a large share of the gap between a sale price and a tax value.

Why the tax number is usually lower

An HMRC-facing valuation values a holding, not a company, and it does so under a hypothetical transaction, not a real one.

• The hypothetical purchaser. The statutory buyer is a prudent, arm's length investor with the information a real purchaser could reasonably obtain. Not the one strategic acquirer who would pay most.
• Minority position. A holding that cannot direct the company attracts a discount for lack of control, commonly 30% to 45% for a small stake.
• Illiquidity. Unquoted shares carry a discount for lack of marketability, typically 15% to 35%.
• Share class restrictions. Pre-emption rights, compulsory transfer provisions and dividend restrictions reduce value, which is precisely the gap between UMV and AMV in EMI work.
• A fixed date. Probate value is set at the date of death. EMI value is set at grant. Neither moves because the market improved afterwards.

Worked example: the same company, four questions

A UK B2B services company with adjusted EBITDA of £600k, net cash of £150k, a founder holding 70% and a manager being granted 3% under EMI.

Standalone enterprise value: 6.0x x £600k = £3.6m. Equity value £3.75m.

Every figure above is defensible. None of them is the "real" number, because there is no such thing independent of the question.

The five most expensive mistakes

1. Using a broker's indicative sale figure in an HMRC submission. Marketing valuations are prepared to win a mandate. Submitted to Shares and Assets Valuation they overstate value, and on an EMI grant that means a higher exercise price than necessary or, worse, an inconsistency HMRC will ask about.

2. Using an EMI value to price a share sale between shareholders. The minority and marketability discounts that are correct for a small option grant are not automatically correct for a negotiated block transfer between existing shareholders.

3. Using a probate value as a sale expectation. Executors regularly assume the IHT figure is what the business will fetch. It is a hypothetical open market value of a holding at a fixed date, not a marketed price achieved after a competitive process.

4. Ignoring the basis set out in the articles. Many UK articles define a transfer price as "fair value as determined by the auditors", which in practice frequently means a pro-rata share of value with no minority discount. That basis overrides general valuation practice.

5. Applying discounts where the basis excludes them. In divorce proceedings and in many unfair prejudice cases the court values on a fair value basis that disapplies the minority discount. Applying one anyway invites the whole report to be discounted.

How the purposes map to the work

Detail on the tax-side mechanics sits in What is HMRC SAV and the EMI valuation guide. The transaction-side view is in How buyers value UK SMEs.

Can one report cover several purposes?

Sometimes, but it must say so. A single valuation exercise can produce a commercial market value and a statutory open market value of a specific holding, provided the report presents them separately, states the basis for each and explains the bridge between them.

What does not work is a single number, unlabelled, reused across contexts. The moment an HMRC officer, a buyer's due diligence team or an opposing expert finds the same figure used on two incompatible bases, the credibility of the whole report is in question.

The practical test

Before commissioning or relying on a valuation, three questions establish whether the number is fit for purpose:

1. What is being valued? The whole company, or a specific holding with specific rights.

2. On what basis? Strategic market value, fair market value, statutory open market value or fair value.

3. As at what date? And what has changed since.

A report that does not answer all three on its first page has not started the job.

FAQ

Related guides

• How to value a UK business - the full valuation process
• Business valuation methods - choosing between the recognised methods
• UMV vs AMV - the two values in every EMI valuation
• Minority discount - control and its price
• IHT business relief and valuation - the estate perspective