Rollover relief - shares in a personal company
I have been reading an interesting case that was recently referred to the Special Commissioner.
A trade was carried on by a company (which we shall call 2SPD), which had issued share capital of 60,000 ordinary shares of 1p each. Of that number, 59,932 (ie 99.87%) were held by a holding company (BHP). Of the remaining 68 shares, the taxpayer and his wife held 53, and the balance was held by a third party.
All of the shares in BHP were held by the taxpayer and his wife, the taxpayer holding a little over 50 per cent.The taxpayer claimed that his wife exercised her voting rights in accordance with his wishes, as he was in charge of running the business.
The taxpayer and his wife owned some farms and feed mills which they rented to 2SPD at normal commercial rates. They sold the assets and wished to claim rollover relief in respect of replacement assets.
A trade was carried on by a company (which we shall call 2SPD), which had issued share capital of 60,000 ordinary shares of 1p each. Of that number, 59,932 (ie 99.87%) were held by a holding company (BHP). Of the remaining 68 shares, the taxpayer and his wife held 53, and the balance was held by a third party.
All of the shares in BHP were held by the taxpayer and his wife, the taxpayer holding a little over 50 per cent.The taxpayer claimed that his wife exercised her voting rights in accordance with his wishes, as he was in charge of running the business.
The taxpayer and his wife owned some farms and feed mills which they rented to 2SPD at normal commercial rates. They sold the assets and wished to claim rollover relief in respect of replacement assets.
HMRC contended that the conditions for rollover relief were not met. They argued that the trade was not being carried out by the taxpayer's "personal company" within the terms of the legislation. The relevant definition, contained in Schedule 6 paragraph 1 of the Taxation of Chargeable Gains Act 1992, provided as follows:
The Special Commissioner disagreed. It was not merely a question of fact, such that voting rights were sufficient, regardless of ownership. It was a question of fact and law. The concept of ownership of the shares was essential for the scheme of rollover relief. To extend entitlement to any person (here the taxpayer) who could exercise voting rights on behalf of another person (ie BHL) would be too wide a construction. He therefore determined that the entitlement did not so extend.
Reference: Boparan Holdings Limited.
"personal company", in relation to an individual, means any company the voting rights in which are exercisable, as to not less than 5 per cent by that individual:".HMRC claimed that as the taxpayer did not hold up to 5 per cent in 2SPD, the company was not his personal company, and rollover relief would not be given. The taxpayer contended that while he did not directly hold 5 per cent of shared in 2SPD, he controlled (both directly as to his holding, and indirectly through his wife) all the shares in BHL, which in turn held 99.87% of the shares in 2SPD. He therefore argued that he controlled all the votes in 2SPD, through his control of all the votes in its holding company, BHL.
The Special Commissioner disagreed. It was not merely a question of fact, such that voting rights were sufficient, regardless of ownership. It was a question of fact and law. The concept of ownership of the shares was essential for the scheme of rollover relief. To extend entitlement to any person (here the taxpayer) who could exercise voting rights on behalf of another person (ie BHL) would be too wide a construction. He therefore determined that the entitlement did not so extend.
Reference: Boparan Holdings Limited.
Categories
Capital gains tax reliefs , Special Commissioners0 TrackBacks
Listed below are links to blogs that reference this entry: Rollover relief - shares in a personal company.
TrackBack URL for this entry: http://www.pluckedgoose.com/cgi-bin/mt/mt-tb.cgi/50
Leave a comment