Judgment summary
This appeal concerned a closure notice issued by HMRC that denied the Appellant's claim to Business Asset Disposal Relief (BADR) on the disposal of her B shares in StudioAnyo Architects Limited (formerly Maja Architects Limited). HMRC increased the Appellant's Capital Gains Tax liability by £46,260 on the basis that the company was not her 'personal company' under s 169S(3) TCGA, because her B shares did not carry the requisite 5% of voting rights (1, 2, 3).
The Tribunal found that the only issue for determination was whether at least 5% of the voting rights in the company were exercisable by the Appellant by virtue of her shareholding throughout the two-year period ending with the date of disposal (6).
Having considered the statutory filings, the Model Articles, and the parties' submissions, the Tribunal concluded that the register and Companies House filings were prima facie evidence that the B shares carried no voting rights, that this had not been rebutted, and that the Appellant had not applied to rectify the records. The appeal was dismissed (99, 100, 101).
Background
The Appellant became a director of the Company on 1 March 2015 (11). On 15 March 2015, the Company allotted 99 further ordinary shares to Mr James Cyril Walsh and 100 B ordinary shares to the Appellant (12).
Form SH01 filings for the periods ending 20 October 2016 and 20 October 2020 (the 'Relevant Filings') recorded that the B shares held by the Appellant had no voting rights and no rights to distribution on winding up, though each share ranked equally for dividends (13). Confirmation Statements from 2016 onwards confirmed this position remained unchanged (14).
The Appellant resigned as director on 2 February 2017 but remained an employee until 31 March 2021 (15). On 20 October 2020, she sold her B shares to Mr Walsh for £475,000 (16). On 31 March 2021, she declared a £474,900 capital gain and claimed £462,600 BADR (17).
HMRC opened an enquiry on 2 September 2022 and concluded that the disposal did not qualify for BADR because the Appellant did not hold at least 5% of the voting rights, as required by s 169S(3)(b) TCGA (18). A Closure Notice was issued on 21 November 2023, disallowing BADR and increasing the Appellant's self-assessment by £46,260 (21). The Appellant appealed, and following an unsuccessful statutory review, appealed to the First-tier Tribunal on 2 October 2024 (22-25).
Core dispute
The dispute centred on whether the Appellant's B shares conferred voting rights such that, at the date of disposal, she held at least 5% of the voting rights in the Company, as required by s 169S(3)(b) TCGA for the Company to be her 'personal company' for BADR purposes (6, 68, 69).
HMRC relied on the Relevant Filings and the Confirmation Statements, which consistently recorded that the B shares had no voting rights, and submitted that the register was prima facie evidence of this position under s 127 of the Companies Act 2006 (44, 73).
The Appellant submitted that, according to the Company's Model Articles, her shares ranked pari passu with other share classes and therefore satisfied the criteria for BADR. She further submitted that the Relevant Filings were inaccurate and did not reflect the true agreement or intention of the parties (4, 45, 53, 76).
Court findings
The Tribunal held that the relevant voting rights for the purposes of s 169S(3)(b) TCGA are rights exercisable in a general meeting of the company, not merely as between shareholders of a particular class, citing Hepworth v Smith [1981] STC 354 (61).
The Tribunal found that the Class A and B shares were not uniform, as they carried different voting rights as documented in the Relevant Filings, and that the Model Articles relied upon by the Appellant had never been amended by resolution and were silent as to the rights of new classes of shares, which was of no probative value to the appeal (88).
Applying the principle from Enviroco Limited v Farstad Supply A/S [2011] UKSC 16 and Bland v Keegan [2024] EWCA Civ 934, the Tribunal held that the entries on the register of members are presumptively valid unless and until the register is rectified (63, 96-98).
The Tribunal found no evidence of the Appellant exercising voting rights, such as a written resolution or minutes of a general meeting, and noted that the Appellant had received legal advice recommending rectification of any inaccurate filings but had not acted on it (77, 78, 81, 100).
The Tribunal concluded that the register was prima facie evidence of the class of shares held by the Appellant, that the Confirmation Statements and SH01 showed she did not have voting rights, that any inaccurate filings were not remedied, and that the Appellant did not apply to rectify the records (100).
Outcome
The Tribunal was satisfied that the B shares disposed of by the Appellant did not confer at least 5% of the voting rights within the meaning of s 169S(3)(b) TCGA, and therefore the Company was not the Appellant's 'personal company'. The appeal against the Closure Notice was dismissed (99, 100, 101).
Major issues / areas of contention
- Whether the Company was the Appellant's 'personal company' within the meaning of s 169S(3) TCGA at the time of disposal of her B shares.
- Whether the Appellant's B shares conferred at least 5% of the voting rights exercisable by her by virtue of that holding, as required by s 169S(3)(b) TCGA.
- Whether the register of members and Companies House filings (SH01 and Confirmation Statements) were determinative or merely prima facie evidence of the rights attaching to the B shares.
- Whether the Model Articles of Association, being silent as to the rights of new classes of shares, meant that the B shares ranked pari passu with the ordinary shares.
- Whether the Appellant's failure to apply to rectify the statutory records affected the weight to be given to the Relevant Filings.
- Whether relevant voting rights for the purposes of s 169S(3)(b) TCGA must be exercisable in a general meeting of the company, rather than merely between holders of a particular class of shares.