In The Quentin Skinner 2005 Settlements v HMRC [2019] TC7312 the FTT approved an Entrepreneurs relief claim on a sale of shares by a trust: the 1 year period did not have to be met by a qualifying beneficiary if they already met the personal company conditions for shares held personally.
Entrepreneurs' Relief (ER) is available on the disposal of eligible business assets held in trust in certain circumstances (s169J TCGA 1992).
- Trustees cannot claim ER on trust assets but can "share" a qualifying beneficiary's lifetime limit.
- A qualifying beneficiary (QB) must have an interest in possession, not for a fixed-term, in the whole of the settlement assets being disposed of, for ER to apply.
- On a sale of shares, throughout a period of 1 year (2 years from 6 April 2019) ending within the three years prior to disposal:
- the company must be the QB’s personal company and
- the QB must be an officer or employee of the company.
In July 2015 three members of the Skinner family (“the Beneficiaries”) were each given an interest in possession in the whole of the settled property of three separate family settlements.
- The Beneficiaries had each held 32,250 C ordinary shares, with full voting rights, in DPAS Ltd since 2011, such that DPAS Ltd was a “personal company” of each of them.
- In August 2015, Mr Quentin Skinner gave 55,000 D ordinary shares in DPAS to each trust.
- In December 2015 the Skinner Settlements disposed of the D shares and claimed ER.
- HMRC denied ER on the basis that in each case the beneficiary had not been a qualifying beneficiary for 1 year before the shares were sold. The trustees appealed.
The FTT allowed the appeal, the judge referencing the explanatory notes to the ER legislation as an aid to the interpretation of s169J. The notes say:
“Subsection (4) (of s169J) describes the “relevant condition” that must be satisfied if the settlement business assets are shares in or securities of a company… The condition applies to the qualifying beneficiary the tests that would have applied under section 169I(6) or (7) if the qualifying beneficiary were an individual making a claim for entrepreneurs’ relief in relation to a disposal of the shares... So the condition is that throughout a period of one year ending within the three years up to the date of the disposal:
- the company is the qualifying beneficiary’s personal company;
- the company is a trading company or the holding company of a trading group; and
- the qualifying beneficiary is an officer or employee of the company…”
The judge took this to mean that, as with the situation where an individual sells personally owned shares in a company, once the personal company conditions are met, additional shareholdings which are owned by a trust for which the individual is a qualifying beneficiary, will automatically qualify for relief, even if he has not been a qualifying beneficiary for the requisite period (this was 1 year for the period in question).
Comment:
The decision here contradicts the guidance in HMRC’s manuals (as amended sometime in 2018/19) which say:
“A “qualifying beneficiary” is an individual who throughout the relevant 2 year period has an interest in possession (other than an interest in possession which has a fixed term) in the whole of the settled property of the settlement, or in a part of the settled property that contains the settlement business assets disposed of - TCGA92/S169J(3)..“
This was apparently not referred to at the FTT hearing by either HMRC the tribunal judge, but is not the exact wording of s169J(3) TCGA, which does not actually mention any relevant period.
Links to our guides:
Entrepreneurs relief: disposal of trust business assets
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