On 6 September 2017, the Upper Tribunal11 over-turned a First-tier Tribunal decision, holding that shares with no dividend rights are "ordinary share capital". From the point of view of legal certainty this was a welcome decision, removing an apparent conflict between recent decisions on this issue12.

The First-tier Tribunal (FTT) had held that shares having no dividend rights had rights to dividends at a fixed rate of 0%. Such shares should therefore be excluded from the definition of "ordinary share capital" with the result that, in the eyes of the FTT, the taxpayers in question were entitled to entrepreneurs' relief on sale of their shares as they each held over 5% of their company's share capital (excluding shares carrying fixed-rate dividend rights).

Perhaps not surprisingly, the Upper Tribunal (UT) rejected the FTT's approach. In the view of the UT the shares in question did not have any dividend rights at all. The effect was that these shares formed part of the "ordinary share capital" of the company which, in turn, meant that the taxpayers fell below the 5% threshold required for entrepreneurs' relief. The UT expressed sympathy for the taxpayers (as the offending share class had only arisen due to a requirement imposed by a local authority approached for a grant), even suggesting that Parliament might want to consider whether the legislation needs to be changing to prevent such "unfair" outcomes. However the UT concluded that the statutory provision (section 989 ITA 2007) was clear.

The decision can be viewed here.