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Invalid claim for entrepreneurs’ relief was made carelessly for penalty purposes

By Mark McLaughlin, September 2024

An invalid claim for entrepreneurs’ relief (business asset disposal relief) was made carelessly, HMRC’s penalty notice was validly issued and the decision not to suspend the penalty was not flawed. 

On 30 April 2019, the appellants gifted shares in a company (DWIFA) to other shareholders, taking the appellants’ total percentage ownership of DWIFA to approximately 4.143% each (i.e., below 5% each). On 20 May 2019, the appellants disposed of their remaining shares, and subsequently claimed capital gains tax entrepreneurs’ relief (ER) in their tax returns for 2019/20.  

Following an enquiry by HM Revenue and Customs (HMRC), in which HMRC pointed out that for a successful claim for ER (under TCGA 1992, s 169S), it was necessary to hold 5% of the share capital and voting rights for two years prior to disposal, PDC conceded that the claim made for ER (subsequently renamed business asset disposal relief) was invalid and

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