The qualifying conditions for entrepreneurs’ relief continue to evolve
The qualifying conditions for entrepreneurs’ relief continue to evolve and March 2019 saw the conclusion of another tribunal challenge in a related case.
One of the qualifying conditions for entrepreneurs’ relief is that the disposed shares must be shares of a personal company, where the shareholder and employee holds at least 5% of share capital and voting power.
P Hunt v HMRC [2019] UKFTT 210 (26 March 2019) centred on the definition of that share capital means in this case.
Mr Hunt held different number of two classes of shares of differing nominal value in Foviance Group Ltd, as follows:
|
No of shares |
Nominal value per share |
Issued share capital |
E shares |
73,448 |
10p |
£7,344.80 |
B shares |
100,000 |
£1 |
£100,000 |
Total held by Mr Hunt |
173,448 |
|
£107,344 |
Total issued by company |
2,198,355 |
|
£2,576,483 |
% of company |
6.21% |
|
4.16% |
% of votes |
6.21% |
|
|
Mr Hunt sold the shares and claimed ER. HMRC challenged his claim and raised a CGT assessment for £199k.
The Taxpayer appealed based on the fact that a multi-factorial test should be applied to consider whether the number of shares vested sufficient ownership rights from a commercial economic point of view including rights to vote, rights to receive dividends, and rights to receive capital on a winding up.
The FTT based its judgement on the exact wording in legislation, which mentions ‘issued share capital’ rather than ‘issued shares’.
It added that both in TCGA 1992 and the Companies Act 2006, share capital is divided into shares each of which has a fixed nominal value. The 5% test therefore refers to 5% of the total nominal value of a company’s share capital.
Tribunal found that:
The appeal was dismissed.