Condition breached

Preferential right on enterprise investment scheme shares

Between 2012 and 2014 the taxpayer made three issues of preferred ordinary shares. After the second a new class of A ordinary growth shares was created for the company directors and managers.

HMRC had authorised enterprise investment scheme relief for the first two issues but later withdrew it. The Revenue cited an amendment to the articles of association when the A shares were issued which gave the subscribers to the preferred ordinary shares a preferential right to the company’s assets on a winding-up (ITA 2007 s 173(2)(aa)). It refused relief for the third issue.

The taxpayer appealed saying the preferential right was ‘purely theoretical’.

The First-tier Tribunal noted that under s 173(2)(aa) to qualify for enterprise investment scheme relief the shares had to be ordinary and not carry any present or future preferential right to...