The taxpayers and some other shareholders decided to dispose of their shares in their company to the other shareholders. The taxpayers gifted a small number of the shares to the remaining shareholders to reflect more accurately their contribution to the business.
The taxpayers claimed entrepreneurs’ relief on the gain. HMRC refused the claim because the effect of gifting some of the shares was to reduce their value below the 5% requirement for the relief. It imposed penalties on each taxpayer for carelessness.
The taxpayers accepted that relief was not due but disputed the penalties.
The First-tier Tribunal noted that neither taxpayer had obtained separate advice from a ‘competent professional adviser’ but had relied on the advice given at company meetings about tax and restructuring issues. This was despite the taxpayers having been warned that they should appoint an adviser who had a ‘greater knowledge of the tax implications’ of making the gifts...
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