Relief denied

Meaning of ordinary shares for entrepreneurs’ relief

The taxpayer claimed entrepreneurs’ relief for 2011/12 and 2012/13 on the disposal of shares in DH. He held 5% of the ordinary shares in the company. But the issued share capital included deferred shares which if included as ordinary shares reduced his holding to 4.99%. As a result he would not meet the conditions for entrepreneurs’ relief in TCGA 1992 s 169S(3). HMRC held this was the case and denied him the relief. The taxpayer appealed saying the deferred shares had in reality no voting rights or value.

The First-tier Tribunal accepted that the deferred shares had been created for a commercial and genuine purpose to ensure the ‘wellbeing of the company in the case of share-incentivised employees ceasing to play a part in it or becoming its rivals after they have left’. Regardless of...