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Capital gains tax on sale of shares


        One of the conditions for claiming ER is that the taxpayer (T) was employed or an officer throught out one year prior to the disposal of the shares. This is the wording in the article Entrepreneurs' Relief - what you need to know and which I presume is the same as the wording in the statute itself.

        In this case T sold shares in a private company generating a CGT liability of over £90K. He qualifies in all respects for ER with the one exception that he had resigned frombeing a director and company secretary approximately 2.5 years prior to the date when he was paid for the shares.

        The background is that T was a member of a family which in 2004 started up a company engaged in food manufacture. The company did well but during ensuing years was alwys short of cash. In 2006 an outside interest (OI) purchased shares in the company, injecting capital. By 2008 as the result of rights issues OI had become the majority shareholder. In 2009 by a further rights issue and an accompanying shareholders agreement OI gained total control. OI required T to resign from his posts. At that point T started negotiations with OI to purchase all his shares and this concluded with payment for the shares in Feb 2012.

      In principle this seems an obvious case qualifying for ER. i.e. to encourage business enterprise.

      Much depends on the interpretation of the words I have referred to "throughout one year prior to the disposal of shares ......" It does not say "throughout one year ending with the date of the disposal of shares..."  Furthermore the words "disposal of shares" does not say the "date of disposal of shares". "Disposal" could mean the whole gamut of the prior negotiations as well. Of course, there could be a misquote above but if not there seems to be an ambiguity which by law has to be interpreted in favour of the taxpayer I believe.

         Another possibility is that the associated disposal rules might be invoked here.

         Any thoughts ? 


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08th Feb 2013 14:28

Sorry - but the rules are quite clear!


From the TGCA 1992 Act - 169I(6)  Condition A is that, throughout the period of 1 year ending with the date of the disposal–

(a)the company is the individual's personal company and is either a trading company or the holding company of a trading group, and

(b)the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.


While there is no defintion of "disposal" HMRC take it to mean when the beneficall ownership is transferred. Which will mean when the shares were sold, unless the share sale contract transferred benefical ownership before that date!

So when did the contract for sale become unconditional, as an example? what was its terms? He amy have been paid in 2012, but was there an agreement and trasnfer of those shares before?

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