In HMRC v M & E McQuillan [2017] UKUT 0344 (TCC) the Upper Tribunal (UT) held that shares with no entitlement to dividends were Ordinary Shares for the purposes of the Entrepreneurs’ Relief legislation. This meant the taxpayers held under 5% of the company so relief was not available.


  • The taxpayers were married and each held 33 “normal” shares in the company, with another couple (AB) holding 17 shares each (100 shares in total)
  • AB loaned the company £30,000. The bank required this to be converted into share capital, so 30,000 redeemable shares, which bore no dividend or voting rights and had no additional entitlement to capital, were issued
  • The company redeemed the shares before being sold
  • HMRC argued that the redeemable shares formed part of the ordinary share capital so the taxpayers held less than 5% and so were not entitled to Entrepreneurs’ relief.
  • The First Tier Tribunal (FTT) found for the taxpayer in Entrepreneurs' Relief:the dangers of unusual share rights
  • HMRC appealed
  • The UT overturned the FTT decision.

Share capital: what's an ordinary share?

The key legislation is to be found in s989 of ITA 2007, which defines “ordinary share capital” as “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 FTT had considered that the absence of dividend rights was equivalent to a right to a fixed dividend at 0%. The UT took the view that zero is not an amount so a dividend of 0% was not a dividend in any case, so the redeemable shares could be ordinary shares.

The UT also considered whether a purposive reading of the legislation would alter things.

  • The UT believed the legislation was clear, so a purposive reading was not applicable
  • The purpose to consider would be that of the Act in which the definition appears, not the purpose of the Entrepreneurs’ Relief legislation
  • Hence, a purposive reading would not assist the taxpayer.


Mathematicians would disagree about zero; it is a number and the concept is somewhat fundamental. Whether a mathematical argument would help in a further appeal is less clear.

The UT did note that this was the sort of case Entrepreneurs’ Relief was meant to apply to, and that if the loan had not been converted relief would have applied.

It is clear from the verdict that where “unusual” shares are introduced into a structure, for example, to capitalise a loan, it is important that they actually bear at least a nominal coupon in order to meet the criteria in s989.



HMRC v M & E McQuillan [2017] UKUT 0344 (TCC)

The FTT decision is considered in Entrepreneurs' Relief:the dangers of unusual share rights

Subscriber guides: 

Share capital: what's an ordinary share?

Entrepreneurs' Relief