First Tier Tribunal case has significant bearing on the 10% Capital Gains Tax Entrepreneurs Relief rate for minority shareholders

16 March 2016

16 March 2016 by Chris Blundell Tax

‎In a First Tier Tribunal case, Castledine vs HMRC, the Tribunal has decided that, although it thought they shouldn't, it could find no reason in the legislation why worthless deferred shares should not be considered part of a company's ordinary share capital‎. This is important for shareholders who have more than 5% of a company when deferred shares are ignored and less than 5% when they aren't if they think they're going to qualify for the 10% entrepreneurs relief rate on their shares when they sell them.

Do people think deferred shares should or shouldn't be treated as part of a company's share capital? The FTT thought they shouldn't but were hamstrung by the legislation.

Whatever the rights and wrongs of this case it also shows the limitations on the Judiciary to change the tax legislation‎. Mind you, one has to contrast this point with the recent UBS/Deutschebank case, where the Supreme Court felt it did have that right in a case of tax avoidance. In other words the Judiciary can add to the legislation if it is in favour of stopping tax avoidance but it can't where it's in favour of the taxpayer.

What are people's views on that‎?