Guarantee rights to shares and entrepreneurs’ relief

MAH Ltd was incorporated in 1979 and limited both by share capital and guarantee rights. Its articles of association provided shareholder members and investor members. The former held shares which carried no voting rights but were entitled to dividends up to the lower of the profits and £2 000 - apportioned according to total shares. Investor members held ‘distribution rights’ each of which cost £100 and carried general voting rights and an entitlement to share in the profits available for distribution in excess of £2 000. Shares could be transferred but there was no provision for the transfer of distribution rights.

The taxpayer was an investor member and acquired four distribution rights. In September 2015 he agreed to sell his distribution rights to a third party SHL. Following completion he would hold the rights as nominee and trustee for SHL and would exercise the voting and other rights. He...