CG64050 - Entrepreneurs’ Relief: shares or securities: personal company
TCHA92/S169S (3) and TCGA92/S169S (4)
TCHA92/S169S (3)
A company will be an individual's personal company if he or she holds at least –
- 5% of the ordinary share capital of the company, and
- that holding gives him or her at least 5% of the voting rights in the company.
TCGA92/S169S (4)
Where two or more persons hold shares jointly each person is to
be treated as holding the appropriate proportion of the total
holding and associated voting power. For example, where a husband
and wife or civil partners own a joint 100% shareholding equally
they are treated as each holding 50% of the shares and 50% of the
voting power.
Note however that shares held, or voting rights which an
individual may be able to exercise, as a trustee of a settlement
CANNOT be counted towards the individual’s 5% total. And a
qualifying beneficiary of a settlement cannot include shares (and
voting rights) held in the settlement in determining whether he or
she holds the 5% necessary for the company to be his or her
personal company.
Any voting rights which come into force only in certain
circumstances are not `exercisable' while those circumstances do
not exist. For example, preference shares in a company may entitle
the shareholder to a vote only if the dividend on these shares was
six months in arrear at the date of the company's annual general
meeting. Such votes would not be exercisable if the preference
dividend never fell into six months' arrear.
But the Retirement Relief case of Hepworth v Smith (54TC396)
makes it clear that it is not necessary for voting rights actually
to be exercised for them to be exercisable. Vinelott J said what
one has to look at is the factual question whether voting rights
exercisable in general meeting are or are not exercisable by the
individual claiming relief.
Ordinary Share Capital
For the purposes of Entrepreneurs’ Relief ‘ordinary
share capital’ has the meaning given to it by the Income Tax
Acts – see ITA2007/S989 – which says it means all of a
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.
Revenue & Customs Brief 54/07 gives details of
HMRC’s interpretation of ‘ordinary share capital’
as defined in ITA2007/S989 (previously ICTA 88/S832). It provides
information that will be useful in deciding whether any particular
non-UK entity has ‘ordinary share capital’ for the
purposes of the statute.
