Case Law Highlights Requirement for Personal Shareholding in Claiming Entrepreneurs' Relief

Citation: [2024] UKFTT 29 (TC)
Judgment on

Introduction

The case of Trustees of the Peter Buckley Settlement v The Commissioners for HM Revenue and Customs [2024] UKFTT 29 (TC) revolves around the question of eligibility for Entrepreneurs’ Relief (ER), now known as Business Asset Disposal Relief, under the Taxation of Capital Gains Act 1992 (TCGA 1992). The case examines the requirements set forth in the legislation for a qualifying beneficiary to claim ER and whether the mere possession of voting rights by a trustee constitutes ownership of shares in one’s personal capacity.

Key Facts

The key facts of the case concern the Peter Buckley Settlement’s claim for ER upon the sale of a single share in Peter Buckley Clitheroe Ltd (PBCL). The share was initially held by Peter Buckley, who later transferred it to the Settlement, of which he was both a trustee and the life tenant. During this period, Buckley was not a shareholder in his personal capacity. After an enquiry into the Settlement’s Self Assessment Tax Return for the 2015/16 tax year, HMRC disallowed the claim for ER as Buckley did not meet the requirement of personally holding at least 5% of the ordinary share capital in PBCL. The trustees appealed the decision.

The focal point of the case centers upon the interpretation and application of the following key legal principles derived from TCGA 1992:

  • Section 169S (3) states that for a company to be considered a personal company in relation to an individual, that individual must hold at least 5% of the ordinary share capital and corresponding voting rights.
  • Section 169J (4) outlines the condition that must be met for trustees, namely that the qualifying beneficiary’s personal company must be a trading company and the beneficiary must be an officer or employee of the company throughout a specific period.

The Tribunal also referenced important legal decisions and considered their relevancy:

  • In WT Ramsay Ltd v Inland Revenue Commissioners [1982] A.C. 300, Lord Wilberforce discussed interpreting statutes by considering context and purpose.
  • In IRC v Duke of Westminster [1936] AC, it was established that courts may consider the substance of the matter over its legal form.

However, the Tribunal held that these dicta did not allow for ignoring the explicit stipulations of Parliament when applying tax relief criteria.

Outcomes

The decision of the First-tier Tribunal was to dismiss the appeal made by the Trustees of the Peter Buckley Settlement. The core reason for this dismissal was the Tribunal’s determination that Mr. Buckley did not fulfill the condition of personally holding at least 5% of the ordinary share capital of PBCL. The ruling emphasized that a trustee holding shares does not equate to personal holding of shares as required by Section 169S(3) of the TCGA 1992. Therefore, the trustees failed to establish their claim for ER and were liable for the additional capital gains tax assessed by HMRC.

Conclusion

The Trustees of the Peter Buckley Settlement v The Commissioners for HM Revenue and Customs [2024] UKFTT 29 (TC) reaffirms the literal and strict interpretation of tax statutes particularly in the context of claims for tax relief such as ER. Despite the trustees’ argument that the effective control and voting rights should equate to the holding of shares, the Tribunal underscored that legally distinct roles and entities cannot be conflated when applying the strict criteria for tax relief under TCGA 1992. This case serves as a pertinent reminder for trustees and legal professionals on the interpretation of ‘personal company’ for the purposes of claiming ER, underscoring the necessity of adhering to the specific statutory requirements outlined by Parliament.