When Preference Shares Are Ordinary Shares – Entrepreneurs’ Relief is a post arising from the case of Revenue and Customs v Stephen Warshaw  UKUT 366 (TCC).
The taxpayer Mr Warshaw succeeded in having his Preference Shares being affirmed as Ordinary Shares. He had succeeded in the first instance in his claim to Entrepreneurs’ Relief after HMRC denied his claim. However, HMRC appealed. They lost.
In order to qualify for Entrepreneurs’ Relief you require to have at least 5% of the ordinary shares and 5% of the voting rights.
In order to qualify the company in which the shareholding is held needs to be a ‘personal’ company of the individual:
That term is defined by section 169S(3) Taxation of Chargeable Gains Act 1992 (“TCGA”) as follows:
For the purposes of this Chapter ‘personal company’, in relation to an
individual, means a company —
(a) at least 5% of the ordinary share capital of which is held by the
(b) at least 5% of the voting rights in which are exercisable by the
individual by virtue of that holding.
A “personal company” is defined by reference to a specified percentage of both ordinary share capital and voting rights. The “ordinary share capital” is defined by section 169S(5) in the following way: “ordinary share capital” has the same meaning as in the Income Tax Acts (see section 989 of ITA 2007).
Section 989 Income Tax act 2007 (“section 989”) defines “ordinary share
capital” as follows: “ordinary share capital”, in relation to a company, means all the 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.
The key issue therefore on this appeal is whether the Preference Shares were actually Ordinary Shares:
The Upper Tribunal had the following to say about fixed rate shares:
This post When Preference Shares Are Ordinary Shares – Entrepreneurs’ Relief is not legal advice and not to be relied upon as such.