How is “Issued Share Capital” measured for ER purposes?

In Hunt v HMRC [2019] UKFTT 0210 (TC), the first-tier tribunal, which was heard on 17 January 2019, considered whether Mr Hunt was eligible for of entrepreneurs’ relief (“ER”) on the proceeds from the sale of shares held in Foviance Group Limited (“FGL”) on the basis that it was his “personal company”.

Mr Hunt was approached to become the Chairman of FGL, and subsequently invested £50,000 in exchange for shares over a new class with a nominal value of £0.10 each, in comparison with the pre-existing share classes which had a nominal value of £1.00 per share.

After further investments, share buybacks, award of share options and a merger, Mr Hunt held 73,448 E Ordinary Shares of £0.10 each and 100,000 B Ordinary Shares of £1.00 each. At the time of the company exit, Mr Hunt held 173,448 of the 2,198,355 issued shares, representing 5.94% of the shares in issue.

After the disposal of shares, Mr Hunt filed his Self-Assessment return including a claim for ER on the disposal of shares. However, HMRC opened an enquiry and eventually decided that he was not eligible for ER on the basis that the personal company test was only met if a person held 5% of a company’s issued share capital by nominal value. HMRC closed the enquiry and increased the tax payable by £225,452 (this was later adjusted to £199,751).

HMRC calculated that Mr Hunt only held 4.17% of the total nominal value of the £2,576,483 of the ordinary share capital of FGL;

Shares Held NV per share Aggregate NV
B Ordinary Shares                   100,000 £1.00 £100,000.00
E Ordinary Shares                    73,448 £0.10 £7,344.80
Total NV held £107,344.80
Total NV of OSC of FGL £2,576,483.00
% of NV held 4.17%


Mr Hunt appealed this decision and took HMRC to a first-tier tribunal hearing claiming that the purpose of the ER provisions was to provide a lower rate of tax to those who had made a real and material commitment to a business, and that to refuse ER to a person such as Mr Hunt, who had more than 5% of the votes, more than 5% of the dividend rights and more than 5% of the capital on liquidation but less than 5% by nominal value “cannot be the right test”.

Tribunal Judge Anne Redston rejected Mr Hunt’s appeal and upheld HMRC’s amendment to Mr Hunt’s Self-Assessment return on the basis that the phrase “issued share capital” is measured by nominal value and not the number of shares held, as established by the Canada Safeway case (Canada Safeway v Commissioners of Inland Revenue [1973]).

Ms Redston added that she concurred with the tribunal judge in the Canada Safeway case that measuring issued share capital by nominal value is “simple, workable and, above all, related to the words ‘share capital’”, and so can easily be applied to the many other situations in which the term appears, unlike the multi-factorial alternative suggested by Mr Hunt’s representative.

The moral of this particular case is that amending the share capital of a company can have adverse effects for the shareholders, and that expert advice should ALWAYS be obtained prior to altering the share structure of a company to avoid this. The implementation of share structures with different share classes can have serious consequences when it comes to a company exit, including missing out on a major Capital Gains Tax saving caused by a company having different nominal values for each class of shares.

For further information on this matter please contact Thomas Dalby, James Lindon or Liam Hawkins on 0845 4900 509 or email us on