In Alan Castledine v HMRC [2016] TC04930 it was decided that deferred shares fell within the meaning of 'ordinary shares' for CGT Entrepreneurs’ Relief.

  • Mr Castledine held exactly 5% of the A ordinary shares and B ordinary shares of Dome Holdings Ltd (DHL).
  • There were also a relatively small number of deferred shares in issue, none of which were held by Mr Castledine.
  • The taxpayer claimed tax relief on disposal of his shares.
  • If the deferred shares counted as ordinary share capital Mr Castledine’s share of the company was 4.99% and Entrepreneurs’ Relief was denied.

The rights attaching to the deferred shares were as follows:

  • No voting rights.
  • No dividend rights.
  • Redeemable at par once £1,000,000 has been distributed in respect of each of the 2,001,985 B shares in issue.

Mr Castledine argued that

  • In reality the shares had no rights and no value.
  • It would be absurd for Parliament to have intended that shareholdings which had none of the characteristics of an ordinary share, and which were shares only in name, should be categorised as ordinary shares.
  • Had parliament been aware of the possibility of instruments such as these deferred shares they would have excluded them from the definition of ordinary share.

Ordinary share capital is defined for the purposes of Entrepreneurs' Relief in section 989 of the Income Tax Act 2007:

  • 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 Tribunal was unable to agree that the deferred shares were anything but ordinary shares on a plain reading of the legislation: Mr Castledine was denied Entrepreneurs' Relief.


Subscriber guides:

Share capital: what's an ordinary share? 

Entrepreneurs’ Relief

Case: Alan Castledine v HMRC [2016] UKFTT TC04930