Tribunal allows entrepreneurs' relief appeal

13 June 2024. Published by Keziah Mastin, Associate

In Cooke v HMRC [2024] UKFTT 272 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against HMRC's decision not to allow entrepreneurs' relief (ER) in relation to the disposal of his shares in a company.


In 2017, Jonathan Cooke purchased shares in ISG Holdings Ltd (ISG) from the two founder shareholders for £500,000. He intended to hold exactly 5% of the shares in ISG in order to qualify for ER (now business asset disposal relief). An anti-dilution clause was included in the shareholders' agreement to protect his 5% shareholding in ISG.

In 2019, Mr Cooke sold his shares in ISG, realising a gain of around £600,000, and claimed ER on the disposal. HMRC denied the claim because his shareholding was slightly less than the required 5% of the share capital of ISG due to a spreadsheet rounding error (it was 4.99998%).  The spreadsheet used to calculate the number of shares purchased by Mr Cooke rounded percentages to two decimal places. Mr Cooke appealed to the FT.

FTT decision

The appeal was allowed.

Mr Cooke argued that the High Court would, if requested to do so,  rectify the documents to reflect the intended 5% shareholding.

The FTT concluded that the Mr Cooke's clear intention was to hold 5% of the shares of ISG because:

  • he requested the anti-dilution clause and the shareholders' agreement reflected this;
  • the founder shareholders understood that the agreement was to transfer 5% of the shares in ISG;
  • the Heads of Terms supported the agreement to transfer 5% of the shares;
  • the common intention of the parties continued throughout and they were surprised when it later transpired that 5% of the shares had not been transferred; and
  • the parties agreed that there had been a mistake due to the spreadsheet rounding error.

The FTT also confirmed that it had jurisdiction to take into account what the High Court would do if it had been asked to order rectification. The FTT considered that the High Court would have granted rectification of the share redesignation documents, stock transfer agreement and share certificate, to reflect a 5% shareholding.  The ER conditions were therefore deemed met and the appeal was allowed.


Following Lobler v HMRC [2015] UKUT 0152, this is another example of the tax tribunals being willing to consider what the High Court would do in rectification proceedings and to proceed to determine an appeal as if rectification had been ordered by the High Court.

The decision can be viewed here.

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