UMV vs AMV Explained: Why HMRC Requires Both Values

When do UMV and AMV matter?

Every UK share valuation prepared for tax purposes - and in particular every EMI valuation - returns two values, not one:

• UMV - the Unrestricted Market Value
• AMV - the Actual Market Value

The two figures appear side-by-side on the VAL231 form, on Section 431 elections, and on the company's annual ERS return. Getting them right - and explaining the gap between them - is one of the things HMRC's Shares and Assets Valuation team checks most carefully.

You need both values whenever shares or options are awarded to employees or directors, because UK tax law (ITEPA 2003) draws a distinction between what shares are *actually* worth in the hands of an employee (AMV) and what they would be worth without the strings attached (UMV).

What is UMV?

UMV is the price the shares would fetch in the open market assuming no restrictions of any kind.

In practice it is the value of a clean, freely transferable Ordinary share - no leaver provisions, no transfer restrictions, no compulsory transfer triggers, no forfeiture, no pre-emption rights beyond the statutory norm.

UMV is the starting point of every employment-related share valuation. The valuer derives it using the usual toolkit:

• Earnings multiples benchmarked against listed comparables, adjusted for size and risk
• Recent funding rounds (backsolve from a Preference share price down to Ordinary)
• DCF where reliable forecasts exist
• Net asset value for asset-heavy or distressed cases

Once UMV is set, AMV is derived from it by applying a discount for the restrictions actually attached to the shares.

What is AMV?

AMV is the value of the shares taking into account the restrictions that apply under the company's articles, shareholders' agreement, or option scheme rules.

A restriction reduces AMV only if it is a real, enforceable restriction that a buyer in the open market would price in. Common examples:

• Leaver provisions - good leaver / bad leaver clauses with forced sale at a set price
• Compulsory transfer triggers on insolvency, death or termination of employment
• Transfer restrictions requiring board consent
• Pre-emption rights more restrictive than the statutory baseline
• Drag and tag provisions that affect minority outcomes

If the articles are clean and no shareholders' agreement bites, AMV equals UMV. That is a perfectly normal outcome and HMRC accepts it - provided the report says so explicitly.

UMV vs AMV at a glance

Why both values are needed

The UK tax code treats the two values differently depending on what is happening to the shares:

• EMI options - the exercise price must be set at no less than the AMV at grant for the options to retain their tax-advantaged status. The UMV is also reported and matters for the £250,000 individual limit and the £3m company limit.
• Direct share awards - if shares are issued to an employee without a Section 431 election, the employee is taxed on the AMV at acquisition and then on subsequent growth as employment income. With a Section 431 election, the employee pays income tax on the UMV up-front and any further growth is treated as capital.
• Annual ERS return - the employer's online return requires both values for every reportable event.

The two values are therefore not interchangeable. Using UMV where AMV is required (or vice versa) creates a real tax exposure for the employee, the company, or both.

How the AMV discount is built

The AMV discount is not a generic discount for lack of marketability. It is specifically a discount for the restrictions written into the constitutional documents.

The valuer's job is to:

• Read the articles and any shareholders' agreement in detail
• List every restriction that bites on the relevant share class
• Assess how a hypothetical open-market buyer would price each restriction
• Combine those into a single percentage discount applied to UMV

In practice the discount usually sits in a 5% to 20% range for typical UK SME articles. Tighter ranges apply to clean articles; wider ranges to schemes with aggressive leaver provisions, forced-transfer pricing at par or nominal value, or strong pre-emption regimes.

A 30% or 40% AMV discount needs strong, specific justification - HMRC expects the valuer to demonstrate that each percentage point reflects a restriction a third-party buyer would actually price in.

Which restrictions move AMV?

How HMRC reviews UMV and AMV

When HMRC's Shares and Assets Valuation (SAV) team reviews a VAL231 submission, the reviewer follows a structured sequence. Each step has to be answered convincingly in the report itself - if one is missing, the file comes back with questions.

• Methodology - is the valuation method appropriate for the company's stage, sector and evidence base?
• Articles reviewed? - has the valuer read the articles and the shareholders' agreement, and listed the restrictions that bite?
• Restrictions identified? - are the leaver, transfer and forfeiture provisions identified individually, not bundled?
• Reasonable? - is the AMV discount within the range a third-party buyer would apply to those restrictions?
• Comparable? - is the result consistent with comparable EMI valuations agreed by SAV in similar situations?
• Accepted - if all of the above are satisfied, SAV agrees the value and the EMI grant proceeds.

Decision tree: how AMV is derived

The framework collapses to a small number of decisions. In sequence:

• Are there restrictions on the relevant share class? If no, AMV equals UMV - state it and stop.
• If yes - calculate UMV using the appropriate methodology.
• Assess each restriction - quantify the impact a hypothetical buyer would price in.
• Derive AMV - combine the restriction impacts into a single discount applied to UMV.
• Need VAL231? - if the values support an EMI grant, submit VAL231 with both figures and the restriction analysis.

Common mistakes

Worked example

A UK trading company has Ordinary shares with a UMV of £1.00 per share, derived from a recent funding round.

The articles include:

• A compulsory transfer at fair value on cessation of employment (good leaver) or at the lower of fair value and cost (bad leaver)
• Pre-emption rights on any transfer
• Board consent required for any external transfer

The valuer assesses:

• The bad-leaver risk over a 4-year vesting horizon, weighted by realistic probability
• The discount a third-party buyer would apply to a share that cannot be freely transferred and may be force-sold at cost
• Comparable AMV discounts agreed by HMRC in similar EMI submissions

The conclusion is an AMV discount of 12%, giving an AMV of £0.88 per share. The EMI options are then granted at an exercise price of £0.88 (or above) to preserve their tax-advantaged status.

This is the pattern HMRC expects: UMV first, restrictions analysed individually, AMV justified line by line.

FAQ

Related guides

• What is VAL231? - the HMRC form on which both UMV and AMV are submitted
• What is HMRC SAV? - the team that reviews UMV and AMV submissions
• EMI valuation guide - how UMV and AMV fit into the wider EMI workflow