In Seamus Kavanagh v HMRC [2022] TC08500, the First Tier Tribunal (FTT) found that an individual holding 4.997% of a company was unable to benefit from Entrepreneurs’ Relief on its sale. There was no evidence of other shareholders holding any shares on trust for Mr Kavanagh.

  • Mr Kavanagh was a director and shareholder of Badger Group (Holdings) Limited (Badger), a holding company for a Group carrying on an estate agency business.
  • He acquired his shares in 2006 when, via Share for share exchange, Badger acquired Townends (Egham) Limited (Egham) from Mr Kavanagh and three other individuals who were already shareholders in Badger: Mr Addinall, Mr Gray and Mr Stevens.
    • The total number of Badger shares issued in exchange for Egham (3,684) was arrived at from a valuation of Egham as compared with the value of the Badger group.
    • It was agreed by all parties that 50% of the new shares would be allotted to Mr Kavanagh. The remaining 50% would be allotted between the other three individuals in the same ratio as they held their shares in Egham.
  • Following Badger's acquisition of Egham, Mr Kavanagh was registered as owning 1,842 shares in Badger. The other three individuals were registered as owning 15,000, 15,000 and 5,000 shares.
    • This meant that Mr Kavanagh’s 1,842 shares amounted to 4.997285706531% of Badger’s Ordinary share capital.
  • In July 2009, Badger’s existing shares were redesignated as ‘A Ordinary Shares’.
    • A Shareholders’ agreement was entered into and ‘B Ordinary Shares’ were also issued at this time.
    • The B shares carried no voting rights and so were not relevant to the case.
  • On 31 January 2017, all of Badger's A and B shares were purchased by a third-party company for £22.7m.
    • £19,716,792.28 was paid in respect of the A shares, of which Mr Kavanagh received £985,839.62 (exactly 5%).
  • Mr Kavanagh reported the disposal of his Badger shares on his 2016-17 tax return, claiming Entrepreneurs’ Relief (now Business Asset Disposal Relief).

A condition which had to be met for Entrepreneurs’ Relief to apply to the disposal was for Badger to be Mr Kavanagh's 'personal company' for the 12 months ending with the date of disposal. This meant he must have held at least 5% of its ordinary share capital and voting rights.

  • HMRC opened an enquiry into the 2016-17 tax return, subsequently issuing a Closure notice removing the Entrepreneurs’ Relief claim on the basis that Mr Kavanagh held 4.997% of Badger’s ordinary shares rather than the necessary 5%.
  • On request, HMRC undertook a Statutory review which upheld the closure notice.
  • Mr Kavanagh Appealed to the First Tier Tribunal (FTT).

Mr Kavanagh argued that the other Badger shareholders held 0.002714293469% of the other A shares on Trust for him, meaning that he was the beneficial owner of 5% in total and, therefore, met the condition for Entrepreneurs’ Relief.

The FTT found that

  • While all shareholders worked on the assumption that Mr Kavanagh’s A shareholding equated to 5% of the total A shares in Badger, this was because they were treating 1,842 shares as approximating to 5%.
  • There was no agreement or understanding that any shares not registered in Mr Kavanagh’s name were held by any of the other shareholders on his behalf.
    • The number of decimal points used on the documentation in 2006 varied and did not always add up to 100%. It was not clear why references to Mr Kavanagh’s shareholding being 5% should be honoured whereas the other shareholders’ rounded percentages should not.
    • The other three Badger shareholders were clear that they treated themselves as beneficial owners of the entirety of the shares registered in their names.
    • The shareholders’ agreement stated that each of the registered owners was the beneficial owner of their shares.
    • The 0.0027% (rounded) ‘disputed shares’ had not previously been relevant to the shareholders and had not been discussed between them.
    • Mr Kavanagh had not taken issue with receiving dividends calculated on 1,842 shares, rather than a 5% holding to which he claimed to have beneficial entitlement.
    • Although Mr Kavanagh received exactly 5% of the disposal consideration relating to the A shares, there was no mention of this being because of the 'disputed shares'.
  • There was insufficient certainty of intention to give rise to an express trust.
    • There was also insufficient certainty of subject matter. There was no evidence as to whose shares were held on trust for Mr Kavanagh or in what proportion.
  • There was no common intention to give rise to a constructive trust. It was also not unconscionable for the other three shareholders to have retained their shares.
    • As with an express trust, there was also insufficient certainty of subject matter.
  • A lack of evidence as to the actual intentions of the parties was sufficient to rebut any presumption of a resulting trust.
  • The overriding common intention was that the 3,684 shares issued in 2006 would be divided as 50% to Mr Kavanagh (1,842 shares) and 50% between Messrs Addinall, Gray and Stevens. This was reflected in the reality of what occurred.

The appeal was dismissed.


This case is a useful reminder that company shareholders should regularly review their circumstances, particularly in advance of a sale, to ensure they meet the precise conditions for any tax relief that they may wish to obtain.

Had Mr Kavanagh owned only one more share in Badger, he would have met the 5% condition necessary to benefit from Entrepreneurs’ Relief.

Entrepreneurs' Relief has since been renamed Business Asset Disposal Relief.

Useful guides on this topic

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

Issuing new shares (planning and pitfalls)
A practical guide on how to issue new shares in a company together with a summary of some of the pitfalls if an issue fails to qualify for tax purposes.

Case Study 7: Creating a group by share for share exchange
What are the steps for creating a group by way of a share for share exchange? 

Share capital: What's an ordinary share?
What is an ordinary share? Why is it important?

An index to Capital Gains Tax reliefs
There are numerous Capital Gains Tax (CGT) reliefs in the UK: when do they apply and what are the conditions for relief?

External link

Seamus Kavanagh v HMRC [2022] TC08500

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