On 5 May 2016, the First-tier Tribunal in McQuillan v HMRC6 held (in an appeal against the disallowance of a claim for entrepreneurs’ relief) that shares carrying no dividend rights could be regarded as shares carrying rights to a fixed dividend of zero per cent. As a result, such shares were excluded from the definition of “ordinary share capital” used in the conditions for entrepreneurs’ relief eligibility (and also in other parts of UK tax legislation). Accordingly the appellants were eligible for entrepreneurs’ relief as (ignoring the shares in question) they exceeded the threshold of a holding of 5% of ordinary share capital in the company concerned.
As well as contradicting published HMRC guidance, this decision also follows the decision of the First-tier Tribunal in Castledine (see our last update, here, for a summary of this case). The two decisions, by differently-constituted Tribunals, are hard to reconcile. It remains to be seen whether HMRC appeal this latest decision but, in the meantime, there is fresh confusion as to
this aspect of the entrepreneurs’ relief rules (and, indeed, other parts of the tax legislation using the “ordinary share capital” definition).
The decision can be viewed here.