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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: shares or securities: personal company

TCGA92/S169S(3) and TCGA92/S169S(4)


A company will be an individual’s “personal company” if the individual

  • holds at least 5% of the ordinary share capital of the company, and
  • that holding gives them at least 5% of the voting rights in the company.


Where two or more persons hold shares jointly, each person is to be treated as holding the appropriate proportion of the total holding and associated voting power.  For example, where spouses or civil partners own a joint 100% shareholding equally, they are treated as each holding 50% of the shares and 50% of the voting power.

Note, however, that shares held, or voting rights which an individual may be able to exercise, in the capacity of a trustee of a settlement cannot be counted towards the individual’s 5% total held in his or her personal capacity.  Similarly, a qualifying beneficiary of a settlement cannot include shares (and voting rights) held in the settlement in determining whether they hold the 5% necessary for the company to be their “personal company”.

Any voting rights which come into force only in certain circumstances are not ‘exercisable’ while those circumstances do not exist. For example, preference shares in a company may entitle the shareholder to a vote only if the dividend on these shares was six months in arrear at the date of the company’s annual general meeting.  Such votes would not be exercisable if the preference dividend never fell into six months’ arrear.

But the Retirement Relief case of Hepworth v Smith (54TC396) makes it clear that it is not necessary for voting rights actually to be exercised for them to be exercisable.  Vinelott J said what one has to look at is the factual question whether voting rights exercisable in general meeting are or are not exercisable by the individual claiming relief.

Ordinary Share Capital

For the purposes of Entrepreneurs’ Relief “ordinary share capital” has the meaning given by the Income Tax Acts.  ITA2007/S989 says it means all of a 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.

On the authority of Canada Safeway Ltd v IRC (73TC374) it is the nominal value of the ordinary shares rather than the number of ordinary shares that have been issued or the amount subscribed for those shares that must be taken into account for the purposes of ITA2007/S989.  The CT Structure Team in BAI has technical responsibility for ITA2007/S989 (previously ICTA88/S832(1)). The text of their note setting out HMRC’s guidance on the interpretation of “ordinary share capital” can be found at appendix 11 to this manual.