Entrepreneurs’ Relief denied for trust share disposal

In HMRC v The Quentin Skinner 2005 Settlements [2021] UKUT 0029, the Upper Tribunal (UT) denied a claim for Entrepreneurs’ Relief on the sale of shares by a trust. The individual must have been a qualifying beneficiary throughout the one-year period when the personal company condition was met.

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 Entrepreneurs Relief (ER) (known as Business Asset Disposal Relief (BADR) since 6 April 2020).
• HMRC denied ER on the basis that in each case the beneficiary had not been a Qualifying Beneficiary (QB) for one year before the shares were sold. The trustees appealed.
• The First Tier Tribunal (FTT) allowed the appeal, finding that once the personal company ER conditions are met in a personal capacity, additional shareholdings which are owned by a trust of which the individual is a QB, will automatically qualify for ER even if they not been a QB for one year.
• HMRC appealed to the UT.

Section 169J TCGA 1992 allows ER (now BADR) to be available on the disposal of certain trust assets.

• A 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 one year (two years from 6 April 2019) ending within the three years prior to disposal:
  
  • The company must be the QB’s personal company (which is trading).
  • The QB must be an officer or employee of the company.

The UT allowed HMRC's appeal, denying ER, finding that:

• The only tenable construction of s.169J(4), when read with s.169O, is that the individual must be a QB throughout the one-year period at a time when the company is the beneficiary’s personal company.

Useful guides on this topic

Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of trust business assets
When can trustees claim BADR?  How to claim BADR. Which types of trust is BADR available to? Who can claim BADR for a trust disposal of business assets?

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

UK Trusts
This guide deals with the taxation of UK trusts. 

Shares sold by trust are eligible for Entrepreneurs Relief
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.

External link

HMRC v The Quentin Skinner 2005 Settlements [2021] UKUT 0029