It’s not personal – HMRC wins entrepreneurs’ relief case

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




B shares




Total held by Mr Hunt




Total issued by company




% of company




% of votes




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 multi-factorial test should be rejected, noting that the ER legislation is highly prescriptive
  • For ER, ‘ordinary share capital’ means all the company's issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company's profits.
  • Further narrowed down the definition of ‘issued share capital’ following that in  McGarry J in Canada Safeway v IRC [1972] 1 All ER 666 to the nominal value of share capital, stating that ‘the test of nominal value is simple, workable and, above all, related to the words share capital’.

The appeal was dismissed.