CoA allows Entrepreneurs' Relief on trust share disposal

In The Quentin Skinner 2015 Settlements v HMRC [2022] EWCA Civ 1222, the Court of Appeal (CoA) found that Entrepreneurs’ Relief was due on the sale of shares by a trust. The individual did not have to be a qualifying beneficiary throughout the one-year period when the personal company condition was met, only at the time of disposal.

• In July 2015, three members of the Skinner family (the Beneficiaries) were each given an Interest In Possession (IIP) in the whole of the settled property of three separate family settlements.
• The Beneficiaries had each personally held 32,250 C Ordinary shares, with full voting rights, in DPAS Ltd since 2011, such that DPAS Ltd was a 'personal company' of each of them.
  • It was accepted that DPAS Ltd was a trading company and that each beneficiary was an officer of it.
• In August 2015, Mr Quentin Skinner gave 55,000 D ordinary shares in DPAS Ltd to each trust.
• In December 2015, the Skinner Settlements disposed of the D shares and claimed Entrepreneurs' Relief (ER) (known as Business Asset Disposal Relief (BADR) since 6 April 2020) on the disposals.
• HMRC denied ER on the basis that in each case the beneficiary had not been a Qualifying Beneficiary (QB) for one year before the shares were sold.

Section 169J TCGA 1992 allows ER (now BADR) to be available on the disposal of certain trust assets.

• A Qualifying Beneficiary must have an IIP, not for a fixed term, in the whole of the settlement assets being disposed of, for ER to apply.
• On a sale of shares, throughout a period of one year (two years from 6 April 2019) ending within the three years prior to disposal, the:
  • Company must be the QB’s personal company (which is trading).
  • QB must be an officer or employee of the company.

On appeal, the Upper Tribunal (UT) previously found that the only tenable construction of s.169J(4), when read with s.169O, was that the individual must be a QB throughout the entire one-year period when the company was the beneficiary’s personal company.

The trustees appealed to the Court of Appeal (CoA), which found that:

• The identification of a QB requires an examination at the date of the disposal.
  • There is no requirement in s.169J(3) that the individual must have had the IIP for any minimum period; only that the IIP should exist at the time of the disposal.
• It would be 'wholly foreign' to the precisely drafted legislation if it were necessary to extract from s.169J(4) a further condition not stated in s.169J(3) that the QB’s IIP had to subsist both at the date of disposal and for a prior one-year period.
  • Had this been the statutory intention, it would be expected that the additional one-year condition would be expressly included in the definition of a QB in s.169J(3). It was not. 
• S.169O, referred to by the UT, is an apportionment provision and is relevant only in certain cases after a disposal of trust business assets within s.169J has already been identified.
  • To draw an inference from s.169O and apply that to the “clear, logical and unambiguous wording of s.169J” would be to “let the tail wag the dog”.
  • S.169O only applies where there is more than one beneficiary with an IIP. It was considered unlikely that Parliament would have intended an assumption which underlies the drafting of that section to govern a case in which s.169O can have no application, owing to there being only one beneficiary.

The trustees’ appeal was allowed.

Useful guides on this topic

Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of trust business assets
When can trustees claim BADR?  How to claim BADR. Which types of trust is BADR available to? Who can claim BADR for a trust disposal of business assets?

Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business
When does BADR apply? What is the rate of BADR? How to claim BADR. Case law on BADR.

UK Trusts
This guide deals with the taxation of UK trusts. 

Trusts & Tax planning
What is a trust? How can trusts be used in tax planning? What are the advantages and what are the pitfalls?

External link

The Quentin Skinner 2015 Settlements v HMRC [2022] EWCA Civ 1222