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In actual fact the question should probably be when is a share definitely a share? At least as far Entrepreneurs’ Relief (ER) is concerned anyway.

If you are thinking about selling your business you need to make sure that what you think of as Ordinary Share Capital will indeed be considered as such, because this could determine the availability of ER, and wouldn’t it be a nasty shock to find out post disposal that your shares were non- qualifying?

To qualify for ER the shares which are being disposed of must be shares in the shareholder’s “personal company”, amongst other things; that is to say that the shareholder must hold at least 5% of the Ordinary Share Capital of the company.

This magical 5% is measured by reference to the nominal value of the Ordinary Share Capital.

Ordinary Share Capital, in relation to a company, means all the company’s issued share capital (however it might be described), but here’s the rub; the legislation goes on to say ‘other than fixed rate preference shares’.

Fixed rate preference shares are broadly defined as shares having a right to receive a dividend at a fixed rate but having no other right to share in the company’s profits.

It would appear that the question of what is a fixed rate preference share should be relatively clear-cut. In practice, however, it can be difficult where there are a number of different share classes, and HMRC’s view on the matter has been ambiguous in the past.

In the last 3 years two First-tier Tribunals reached different conclusions as to whether shares with no right to dividends constituted Ordinary Share Capital. Both cases were appealed.

We have seen an Upper Tribunal case determine that a class of redeemable shares with no dividend entitlement does form part of a company’s Ordinary Share Capital. Whereas a second case found that deferred shares with little value and no dividend rights were also part of a company’s Ordinary Share Capital.

What has been highlighted is that expert advice should always be obtained prior to altering the share structure of a company, or when preparing a company for sale.

The implementation of structures with differing share rights can have enormous consequences when it comes to a company exit.

Our tax experts at Haines Watts are on hand to advise you about getting this right and protecting your entitlement to Entrepreneur’s Relief, get in touch today.

Want to know more? Call us on 0117 974 2569 or email

About the author

David Park

David is a Fellow of the Institute of Chartered Accountants and has worked exclusively in professional accountancy practices in and around Exeter for over 25 years. He has an extensive knowledge of local business issues.

He is particularly experienced in bringing financial direction to the client’s board room. To succeed in business financial strategy is paramount and yet many smaller businesses do not have the resources to recruit internal finance directors.

David has been a business owner since 2005 and an equity partner at Haines Watts since 2013 specialising in providing strategic business and taxation services to owner-managed businesses.

David spends his time working between the Crediton and Exeter offices.

Outside of work he is a voluntary governor at his children’s school and a director of Crediton Rugby Football Club.

David remains hopeful of becoming a professional surfer one day but after 40 years of practicing without getting any better this might not happen.

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