In HMRC v Stephen Warshaw [2020] UKUT 0366, the Upper Tribunal (UT) dismissed a HMRC appeal against a claim for Entrepreneurs' Relief: 10% cumulative preferential shares qualified as ordinary share capital.

  • Mr Warshaw claimed Entrepreneurs' Relief (ER) on the disposal of ordinary shares, ordinary B shares and preference shares in a UK company which he sold for cash of £6,665,332 in 2013.
  • His total shareholding represented 5.77% of the company. Excluding the preference shares, it represented only 3.5%.
  • Under the company articles the preference shares carried the right to a fixed cumulative preferential dividend of 10% per annum (the preference dividend), based on the aggregate of:
    • their subscription price and
    • the amount of any compounded Preference Dividends which had not yet been paid.
  • The articles also provided that aside from the Preference Dividend, no other dividends or distributions should be made, paid or declared with respect to the Preference Shares.
  • HMRC denied ER on the basis that the company was not his personal company as the preference shares were not Ordinary share capital, as defined for ER 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 allowed the appeal, see Stephen Warshaw v HMRC [2019] TC08674; the preference shares were ordinary shares on the basis that:

  • Whether there is right to a dividend at a fixed rate is not to be determined on the basis of what dividends actually accrue or what actually happened but depends on the rights accorded to the shares in the Articles of Association
  • The shares did not have the right to a dividend at a fixed rate because the articles provided that the computation of the dividend amounts must include any cumulative compounded unpaid preference dividends which could be a varying amount depending on the level of the company's distributable reserves.

The UT reviewed the workings that the FTT had made in its case and confirmed its decision, concluding that: dividends paid in respect of the Preference Shares could not be described to be at a 'fixed rate'.

  • A 'fixed rate' was a relationship between two variables.
  • The rights attaching to the Preference Shares included more than two variables.

The Preference Shares qualified as ordinary share capital and the ER claim was valid.

HMRC’s appeal was dismissed.


  • Prior to October 2018, an individual needed to hold at least 5% of a company’s ordinary share capital and voting rights for a company to be their 'personal company'  for Entrepreneurs’ Relief (ER) to apply on a disposal of their shares.
  • In 2019, the government changed the name of ER, to Business Asset Disposal Relief (BADR).

Useful guides on this topic

Business Asset Disposal Relief: At a glance
A FREEVIEW guide to CGT Business Asset Disposal Relief (BADR), the relief formerly known as 'Entrepreneurs' Relief'. What is BADR? When does BADR apply? 

Business Asset Disposal Relief: Disposal of a business
When does BADR apply? What is the rate of BADR? How to claim BADR. Case law on BADR.

Business Asset Disposal Relief: Disposal of shares or securities in a company
When can you claim BADR on a share sale?  What is the rate of BADR? How to claim BADR. What case law is there on BADR?

Share capital: What's an ordinary share?
It is essential to know whether a share is ordinary as this sets the qualifying conditions for numerous tax reliefs ranging from Income Tax share loss relief, Seed Enterprise Investment Scheme (SEIS), Enterprise Incentive Scheme (EIS), Capital Gains Tax (CGT), BADR and Investor Relief to Corporation Tax etc.

Dividend tax index
How do you tax a distribution or dividend received from a company?

Dividend index
How do you legally vote and pay a lawful dividend?  What happens if a dividend is unlawful?

External Link

HMRC v Stephen Warshaw [2020] UKUT0366

Stephen Warshaw v HMRC [2018] TC08674